US government finalises first ten drug prices under Inflation Reduction Act

The drugs selected accounted for $56.2bn in total Medicare spending in 2023

After extended negotiations, in August the US government announced that the Biden-Harris Administration had finalised prices for all ten drugs selected for the first cycle of negotiations under the Inflation Reduction Act (the Act).

These negotiated drugs are used to treat conditions such as heart disease, diabetes and cancer and are some of the most expensive and most frequently dispensed drugs in the Medicare programme.

The new prices, which are between 38% to 79% less than the list prices set by drugmakers, will go into effect from 1 January 2026 for patients with Medicare Part D prescription drug coverage and are expected to save taxpayers $6bn within the first year.

President Biden signed the Act into law in August 2022, giving Medicare – the government health plan for older adults – the ability to directly negotiate the prices of a chosen group of prescription medicines for the first time.

Approximately nine million people with Medicare use at least one of the ten selected medications, which include Bristol Myers Squibb/Pfizer’s anticoagulant Eliquis (apixaban), Novartis’ heart failure drug Entresto (sacubitril/valsartan) and Merck & Co’s diabetes medicine Januvia (sitagliptin).

Amgen’s Enbrel (etanercept), AstraZeneca’s Farxiga (dapagliflozin), Eli Lilly and Boehringer Ingelheim’s Jardiance (empagliflozin) and Novo Nordisk’s Novolog/Fiasp (insulin aspart) were also on the list published by the US Department of Health and Human Services (HHS) in August 2023, alongside Johnson & Johnson’s Stelara (ustekinumab) and Xarelto (rivaroxaban), and its AbbVie-partnered Imbruvica (ibrutinib).

Collectively, the ten drugs accounted for $56.2bn in total Medicare spending, or about 20% of total Part D gross spending, in 2023. During that same time period, patients with Medicare Part D spent $18.9bn in out-of-pocket costs for all drugs covered by the plan, including $3.9bn for those selected for negotiation. Aggregated estimated savings of $1.5bn in personal out-of-pocket costs are expected to be passed on to patients in 2026.

HHS secretary, Xavier Becerra, described the announcement as “historic”, adding that “empowering Medicare to negotiate prices not only strengthens the programme for generations to come, but also puts a check on skyrocketing drug prices”.

The Centers for Medicare and Medicaid Services (CMS) said the process was “genuine” and “thoughtful”, outlining that it first developed an initial offer for the drugs and each manufacturer responded with a counter-offer. Following months of negotiations, an agreed price was reached for five drugs, with CMS accepting the companies’ revised offers in four of these cases. The federal agency sent final written offers for the remaining five selected drugs, which were accepted by the companies by the deadline set.

Meena Seshamani, CMS deputy administrator and director of the Center for Medicare, said: “CMS negotiated in good faith on behalf of the millions of people who rely on these ten drugs for their health and well-being… Throughout the process, we remained true to our commitment to be thoughtful and transparent, meeting publicly with patients, providers, health plans, pharmacies, drug companies and others to help inform the process.”

The Act has faced significant backlash since being announced, with major drugmakers and industry groups, including the Pharmaceutical Research and Manufacturers of America (PhRMA), previously suing to block it. Many of the lawsuits claimed the plan was unconstitutional and argued that there is no negotiation element, but rather compulsory price setting backed by punitive fines for non-compliance.

Lawsuits filed by AstraZeneca, Bristol Myers Squibb, Boehringer Ingelheim, Johnson & Johnson and Novo Nordisk have all been rejected in federal courts and subsequent appeals have been made.

In response to the US government’s latest pricing announcement, the PhRMA said in a statement: “The [Act]… fundamentally alters the incentives for medicine development.  Companies are already changing their research programmes as a result of the law, and experts predict this will result in fewer treatments for cancer, mental health, rare diseases and other conditions.”

Despite the heavy criticisms, CMS said that by February 2025 it will have selected up to 15 additional drugs covered under Medicare Part D for negotiation for 2027. It will also be choosing up to 15 additional drugs covered by Part B or Part D for 2028, and up to 20 additional Part B or Part D drugs for each year after that.

“Our team is actively working on the next cycle of negotiations where we will combine what we have learned from this first cycle and apply it in negotiating prices for the next round of up to 15 selected drugs,” Seshamani added.