Background

The IRA, which was signed into law in August 2022, includes several drug pricing provisions. Under the law, Medicare will be able to negotiate certain prescription drug prices with pharmaceutical companies. This provision will initially apply to 10 drugs starting in 2026 and expand to 20 drugs in 2029.

In August 2023, CMS announced the first 10 drugs that will be eligible for price negotiations under the IRA:

• Eliquis, used for preventing strokes and blood clots, made by Bristol Myers Squibb and Pfizer
• Jardiance, used for diabetes and heart failure, made by Boehringer Ingelheim and Eli Lilly
• Xarelto, used for preventing strokes and blood clots, made by Johnson & Johnson
• Januvia, used for diabetes, made by Merck
• Farxiga, used for chronic kidney disease, made by AstraZeneca
• Entresto, used for heart failure, made by Novartis
• Enbrel, used for arthritis and other autoimmune conditions, made by Amgen
• Imbruvica, used for blood cancers, made by AbbVie and Johnson & Johnson
• Stelara, used for Crohn's disease, made by Johnson & Johnson
• Fiasp and NovoLog insulin products, used for diabetes, made by Novo Nordisk

According to HHS, the selected drugs accounted for $50.5 billion in total Medicare Part D gross covered prescription drug costs, or roughly 20% of total Part D gross covered prescription drug costs, between June 1, 2022, and May 31, 2023, which is the period designated by the IRA for price negotiations.

An Advisory Board analysis also found that if CMS had negotiated down the prices of the first 10 selected drugs over the last year, Medicare could have saved roughly between $20 billion and $30 billion, or around 10% of total Part D drug costs.

Biden administration sends initial offers for price negotiations

On Thursday, the Biden administration announced that it had sent pharmaceutical companies initial offers for the 10 prescription drugs up for pricing negotiations. According to a senior administration official, the offers will be kept private unless a manufacturer chooses to disclose them publicly.

"For the first time in history, Medicare is making offers on the fair price for ten of the most widely used and expensive drugs," President Joe Biden said in a statement. "Medicare is no longer taking whatever prices for these drugs that the pharmaceutical companies demand."

Companies will have until March 2 to either accept the initial offer or propose a counteroffer. CMS will also have up to three meetings with each manufacturer until the negotiation period ends on Aug. 1. Final prices for each of the drugs will then be published by Sept. 1.

Manufacturers who do not reach a new price agreement by Aug. 1 will be subject to an excise tax that could ultimately grow to 95% of the drug's U.S. sales.

The prices negotiated for these 10 prescription drugs will go into effect in 2026. CMS will also negotiate prices for an additional 15 Part D drugs in 2027, another 15 Part D and B drugs in 2028, and 20 Part D and B drugs for 2029 and beyond.

Pharmaceutical companies continue to push back

Although the federal government has initiated price negotiations for these drugs, it is unclear whether they will ultimately go into effect. Currently, several organizations have filed lawsuits against the IRA, arguing that the drug pricing provisions are unconstitutional.

Last year, Merck and the U.S. Chamber of Commerce filed separate lawsuits against the IRA. In both lawsuits, the organizations argued the price negotiation process violates the First and Fifth Amendments.

The Pharmaceutical Research and Manufacturers of America (PhRMA), Johnson & Johnson, and AstraZeneca have also all filed lawsuits against the IRA. In its lawsuit, AstraZeneca also argued that the IRA violates the Fifth Amendment by taking the company's "protected property interest without following constitutionally sufficient procedures."

Separately, Alex Schriver, SVP of public affairs at PhRMA, argued that a lack of transparency around the negotiation process will have "lasting consequences for patients long after this administration is gone."

"Government bureaucrats are operating behind closed doors to set medicine prices without disclosing for months how they arrived at the price or how much patient and provider input was used," Schriver said.

However, legal experts say that they are skeptical of pharmaceutical companies' claims about the IRA's unconstitutionality.

"These provisions are clearly constitutional," said Christopher Morten, an associate clinical professor of law at Columbia Law School and director of Columbia's Science, Health & Information Clinic. "I think the challenges that pharma's bringing are specious."

The federal government has also pushed back against the pharmaceutical companies' arguments. "Negotiating drug prices directly with manufacturers is not a new concept," said HHS Secretary Xavier Becerra. "Other health care agencies across the U.S. government, such as the Department of Veterans Affairs, have done this for decades." (Loftus, Wall Street Journal, 2/1; Weiland, New York Times, 2/1; Cohrs, STAT+ [subscription required], 2/1; Choi, The Hill, 2/1; Owens, Axios, 2/1)

CMS announced a list of the first 10 drugs that will be eligible for price negotiations under the Inflation Reduction Act (IRA). What does this tell us about the future of Medicare drug price negotiation? Advisory Board's Lindsey Paul and Chloe Bakst share six things the selected drugs reveal about HHS' strategy.