The Biden administration on Tuesday is expected to take the first step in a new effort to cut prescription drug costs for millions of Americans, a move that the president is touting as one of his signature policy achievements.
The Centers for Medicare and Medicaid Services will release a list of 10 drugs whose prices will be subject to negotiation for Medicare patients, a plan green-lighted in last year’s Inflation Reduction Act.
But the effort will face hurdles — including lawsuits from drugmakers — before older adults see cost savings on their medications. Here’s how things could play out:
When could Medicare patients who take one of the 10 drugs pay less?
Jan. 1, 2026.
However, several factors could complicate that timeline. This includes the outcomes of several lawsuits challenging the constitutionality of the law and the outcomes of the 2024 presidential elections.
If the law goes forward as prescribed, then the final negotiated price for the products won’t be reached until Sept. 1, 2024.
However, Medicare patients will see some relief from drug prices before 2026. Starting in 2025, another provision in the Inflation Reduction Act will cap a beneficiary’s Medicare Part D out-of-pocket costs at $2,000 a year.
CMS also installed a $35 cap for a monthly supply of insulin earlier this year.
After the prices on the 10 drugs are finalized, standalone Part D and Medicare Advantage plans are required to put the drugs on their formularies at the negotiated rate.
How will negotiations work?
Companies have until Oct. 1 to decide whether to participate in the talks. If they decline, they could face an excise tax of up to 90 percent on product sales.
If a company does agree, it will meet with agency officials this fall to provide product-specific data. CMS has said it plans to hold patient-focused listening sessions on each of the 10 drugs.
CMS plans to send an initial price offer to companies by Feb. 1, and the drugmakers have 30 days to either accept the offer or decide to leave Medicare and Medicaid.
“In developing an initial offer, CMS will start with evidence related to therapeutic alternatives and then consider other factors, such as cost of research and development and production and distribution of the selected drug,” according to a revised CMS guidance released in June.
Through spring and summer of 2024, CMS is going to hold up to three meetings with each company to hammer out a price.
The negotiation period ends on Aug. 1, and a month later CMS will release the final price.
CMS must explain its decision on the final price by March 1, 2025.
Why aren’t more drugs being negotiated by Medicare?
The IRA allows CMS to select only 10 drugs for the first round of negotiations.
However, the law allows CMS to increase the number of drugs subject to negotiation in subsequent years.
For 2027, CMS can negotiate the price on another 15 products. By 2028, the agency can negotiate on 15 additional drugs in Medicare Parts D and B, which covers drugs taken in a doctor’s office, such as cancer treatment infusions.
For every year after 2028, the agency can select 20 drugs for negotiation.
The criteria for drug selection will likely remain the same for the subsequent years. CMS will consider the drug’s clinical benefit, whether it addresses an unmet need and its impact on Medicare’s patient population.
Will this impact the prices I pay for drugs if I have private insurance?
Americans with private insurance will not see a direct impact on the prices they pay for drugs as a result of Medicare price negotiations.
However, downstream effects on pricing by drug manufacturers in the private market could materialize, according to Larry Levitt, executive vice president for health policy at KFF.
One scenario that could emerge is that when lower prices are announced for drugs subject to Medicare negotiations, companies may pump the brakes on prices in the private market due to public shaming. Another possibility, he said, is that drugmakers that know they will be subject to lower Medicare reimbursement in the future will try to reap as much profit from private insurers as possible.
“I don’t think anyone really knows how it is going to play out for sure,” Levitt said. “One argument is that drug companies are already maximizing their prices and profits … so the fact that Medicare will get a lower price on some of these drugs shouldn’t impact the prices paid by private insurers and the people they cover.”
Is Congress considering expanding this drug price negotiation program?
President Joe Biden’s fiscal 2024 budget proposes allowing Medicare to negotiate drug prices more quickly after new medicines are approved and increasing the number of drugs subject to price negotiation, a provision that the administration estimates would save $160 billion over 10 years.
Top House Democrats in July introduced legislation to expand the scope of the Medicare drug price negotiation program by expanding the number of drugs added to the program from 20 to 50 starting in 2029 and by extending the IRA’s caps on drug costs that go beyond inflation to those with private insurance.
But both proposals are very likely dead on arrival during the current Congress with Republicans holding a narrow majority in the House.
“The more successful price negotiation is in Medicare, the more pressure there will be to expand it,” Levitt said. “If Republicans sweep Congress and the White House [in the 2024 elections], there could very well be attempts to rollback Medicare price negotiation or to slow it down before it takes effect.”