By: David Ostrowsky

Last month, while many of us were busy vacationing or doing last-minute back-to-school shopping, the Biden administration announced that it had reached an agreement with the titans of the pharma industry to lower prices on the 10 costliest prescription drugs under Medicare, thus bringing to fruition Democrats' decades-long push to allow the government to negotiate directly with pharmaceutical manufacturers. While individual plans had previously been able to haggle over prices with Big Pharma, this development marks a seminal moment as it is the first time that Medicare used its clout to be able to negotiate for the program as a whole.

The ten commonly-used, high-cost drugs include: Eliquis, a blood thinner; Xarelto, a blood thinner; Januvia, a diabetes drug; Jardiance, a diabetes drug; Enbrel, a rheumatoid arthritis drug; Imbruvica, a drug for blood cancers; Farxiga, a drug for diabetes, heart failure and chronic kidney disease; Entresto, a heart failure drug; Stelara, a drug for psoriasis and Crohn’s disease; and Fiasp and NovoLog, diabetes drugs. And with the discounts ranging from 79% for Januvia to 38% for Imbruvica, the cost savings promise to be immense. When the new prices go into effect in 2026, older Americans enrolled in Medicare Part D, many of whom are struggling mightily to afford life-changing prescriptions, are expected to save nearly $1.5 billion in out-of-pocket costs – which comes on the heels of realized savings from other provisions in the Inflation Reduction Act, including a $35 monthly cap on the out-of-pocket cost of insulin and an annual limit on out-of-pocket prescription drug costs; meanwhile, the current administration has estimated that taxpayers could reap $6 billion in savings.

“The negotiations were comprehensive. They were intense. It took both sides to reach a good deal,” Health and Human Services Secretary Xavier Becerra remarked about the contentious talks that culminated in the landmark deal.

While millions of seniors will eventually see costs of drugs that treat heart disease, cancer, and diabetes decline precipitously, the announcement was not universally lauded. Ever since the heated negotiations – as allowed by the Inflation Reduction Act – began in earnest this past January, the pharmaceutical industry pushed back, filing several lawsuits to prevent the negotiated prices from going into effect while claiming the transition would stifle drug innovation. Furthermore, many Republicans denounced the Biden administration’s approach, opining that leveraging Medicare to “fix prices” would not only de-incentivize many pharma companies from investing in new therapies but also hamper competition. (It bears mentioning that the news was greeted with mostly apathy on Wall Street, as many financial analysts, noting how relatively few Americans pay the list prices for drugs anyways, predicted that the development would have a negligible impact on drug companies’ bottom line.) But, after back-and-forth negotiations in which Medicare ultimately accepted a drug company's counteroffer for nearly half of the other drugs while in the other cases companies consented to the government's written final offer, the Biden administration prevailed to achieve one of its landmark goals.

Though it may take many years to evaluate some of the aforementioned long-term concerns, there will be short-term ramifications in the coming months – well before the prices go into effect in 2026. As it stands, the federal government has until this coming March to publish explanations for how it reached the negotiated prices. If a prominent drugmaker such as Merck or Johnson & Johnson refuses to negotiate, it could face a tax penalty, which in turn could be lifted if the drugmaker opts to remove the drug from Medicare. Even before March, Medicare will start negotiating prices for the next batch of prescriptions with the process repeating annually. In fact, Centers for Medicare & Medicaid Services (CMS) can negotiate prices for another 15 drugs for 2027, an additional 15 in 2028, and then 20 medications per year starting in 2029 and beyond.