What’s next for Biden’s Medicare drug price negotiations

The Biden administration on Thursday reached a milestone in the decades-long effort by Democrats to use Medicare to lower prescription drug costs, releasing new prices for the first 10 drugs subject to negotiations between the federal program and drugmakers.

But the announcement is just the beginning of a controversial, multi-round process that could save more money for taxpayers and older Americans and put more pressure on pharmaceutical companies over time. This is a key provision of President Joe Biden’s Inflation Reduction Act, which was signed into law almost exactly two years ago.

The agreed price, which will take effect in 2026, sets a precedent for future rounds of negotiations that will begin next year. The talks will affect prices in the coming years for dozens of more widely used drugs made by the world’s biggest pharmaceutical companies.

“I hope that people should have it is just the beginning. These are only the first ten drugs,” said Leigh Purvis, principal of prescription drug policy with the AARP Public Policy Institute, an arm of the influential lobby group that represents people older than 50, which has advocated for Medicare’s negotiating powers.

“Sometimes people will get caught if the drug isn’t on the list, but it will be on the list at some point in the future if they’re taking a drug that causes high costs,” Purvis added.

It is unclear whether the negotiated price is lower than the current net price of the first 10 drugs, which are heavily reimbursed by Medicare Part D plans. discussed starting in 2026. Copays can also vary depending on which Part D plan the patient has. .

“It’s hard to know the starting point, because … the numbers are not publicly available,” said Tricia Neuman, executive director of the Medicare Policy Program at the health policy research organization KFF, referring to net prices after rebates.

Still, the Biden administration estimates that the new negotiated prices for the drug will result in about $6 billion in net savings for the Medicare program and $1.5 billion in out-of-pocket savings for beneficiaries in 2026 alone.

The negotiations “seem to be going well — the aggregate savings are pretty good,” Neuman said. He added that as more drug prices are released in future rounds, it will “increase the level of savings over time.”

Price talks could also put more pressure on drugmakers in the coming years. Many of the drugs in the first round of negotiations are approaching patent expiration which will open up the market to competition from cheaper generics, which will be profitable.

For example, Bristol Myers SquibbThe blood thinner Eliquis is scheduled to lose patent exclusivity in the US starting April 1, 2028. The blockbuster drug also faces patent expiration in certain EU markets in 2026.

But over time, drugs further away from lost market exclusivity could be picked up for future negotiations, Leerink Partners analyst David Risinger said in a research note Thursday.

In February 2025, the Biden administration will select up to 15 more drugs that will be subject to the next price negotiations, with the new prices going into effect in 2027. Manufacturers will have until the end of February to decide whether to participate in the program – a no-brainer for companies because they face a steep excise tax or loss of access to federal Medicare and Medicaid programs if they do not.

“It’s going to start getting worse over time,” Jeff Jonas, portfolio manager at Gabelli Funds, said in a statement Friday. He notes, for example, that the next price negotiations will include Novo NordiskOzempic is the best selling diabetes drug.

Jonas added that there is “some speculation that the government is going easy on pharmaceutical companies this year because it’s an election year and it’s the first time they’ve done this.”

After the second round, the Centers for Medicare and Medicaid Services can negotiate prices for another 15 drugs that will apply in 2028. The number will increase to 20 per year starting in 2029.

CMS will only select Medicare Part D drugs for covered drugs in the first two years of negotiation. It will add more specialty drugs covered by Medicare Part B, which are usually prescribed by doctors, for the round that takes effect in 2028.

This could be a bigger threat to the pharmaceutical industry, because Medicare Part B drugs are not discounted like Part D covered drugs.

“My guess is that because the rebates are limited, it should go further than Part D drugs that have a lot of rebates,” Risinger told CNBC in an interview, referring to Part B-covered drugs.

Jonas noted that negotiations for a 2028 price change may include some big cancer drugs, such as merck’s chemotherapy blockbuster Keytruda.

Vice President Kamala Harris, the Democratic presidential candidate, will try to broaden the scope of negotiations if elected and “probably be more aggressive on discounts,” Jonas said.

But Neuman said whether he can pass legislation to strengthen the policy will depend on which party controls the House and Senate. Harris himself had to cast the tiebreaking vote in the Democratic-held Senate to pass the original law.

“There is some interest among Democrats in Congress to do it, but obviously the law will depend on which party controls it,” Neuman said.

The pharmaceutical industry says the negotiations could reduce revenue, profits and innovation in the long run.

For example, Steve Ubl, CEO of the pharmaceutical industry’s largest lobbying group, PhRMA, said in a statement Thursday that price negotiations could affect the treatment of cancer, mental health, rare diseases and other conditions because it “fundamentally changes” the incentives for drug development.

Medicare can begin price negotiations for small molecule drugs nine years after receiving US Food and Drug Administration approval, compared to 13 years for biologics. Small molecule drugs are made from chemicals with low molecular weight, while biological drugs are derived from living sources such as animals or humans.

The industry says these differences will deter companies from investing in small molecule drugs.

– CNBC’s Angelica Peebles contributed to this report