The drugmakers suing the US government in multiple courts to block drug price negotiations are doing so for good reason—they’re the ones that stand to lose the most in Medicare’s first-ever plan to control the cost of medicines it spends the most on.
Medicare is expected to reveal the first 10 drugs to be subject to price negotiation by Sept. 1. Medicare officials will have the final say in which make the list, but it’s likely to include high-spend drugs like blood thinners and medicines to control Type 2 diabetes, a Bloomberg Government analysis of the latest available spending data found.
The top 10 candidates for negotiation cost Medicare between $12.8 billion and $1.5 billion each in 2021, based on Medicare’s latest publicly available spending figures. Researchers expect the government to get at least a 25% discount on the drugs picked for negotiation. Medicines like
Other drugmakers with products that could face price talks include
The drug-price program, put in place by the Inflation Reduction Act, is aimed at reducing federal spending and is part of a larger effort to reduce what millions of Medicare beneficiaries pay for prescription drugs.
Drugmakers say lowering the price of these widely used medicines could mean fewer new drugs in the future as pharmaceutical companies respond to lower profits by tightening research budgets.
Which drugs get selected will be up to Medicare officials, but Biden administration allies say the medicines chosen will be among the top spenders.
“That is definitely the million dollar question,” Leigh Purvis, AARP’s director of health care costs and access, said.
Bloomberg Government looked at 2021 spending data coupled with the critieria and exemptions laid out by the Centers for Medicare & Medicaid Services. The drugs are largely the same as an analysis based on 2020 spending, including Xarelto, diabetes drugs Januvia and Jardiance, and overactive bladder treatment Mybetriq.
Medicare spending has since increased by billions of dollars on some of the drugs. Annual spending on Eliquis jumped to $12.8 billion in 2021 compared with $9.9 billion the year before.
After Medicare names the first 10 Part D drugs that will face government-negotiated prices starting in 2026, companies have until Oct. 1 to negotiate with the federal government and sign agreements.
Which drugs Medicare will pick for negotiation remains up in the air because the agency hasn’t made public the spending data that’s a key part of the criteria. The law requires the agency to identify drugs based on total spending between June 1, 2022, to May 31, 2023, but the latest publicly available data are from 2021.
Drugs that have a generic or biosimliar competitor would be exempt from negotiation. Small molecule drugs—which make up most medicines on the market today—are exempt from this process until nine years after their approval date, and biologics—more complex medicines—are exempt from this process until 13 years after their approval date, counting from the time when negotiated prices go into effect.
Drug companies also can sidestep Medicare price negotiations if their product fulfills the agency’s criteria for a small biotech, has a single designation from the Food and Drug Administration to treat rare disease, or there’s “bona fide marketing” of a cheaper version of the brand name drug.
Fighting Back
Merck was the first company to sue the US government over the drug price negotiation program, followed by Bristol-Myers Squibb, Astellas Pharma, and Johnson & Johnson, which owns Janssen. More drugmakers are expected to throw their hats in the ring after Medicare releases its drug list.
These companies stand to lose billions of dollars if their products are selected for government negotiation, according to researchers. Drugs selected for negotiation will automatically be discounted by 25% to 60%, based on how long since they were first approved or their net price, Duane Wright, an analyst for Bloomberg Intelligence
Astellas “disagrees with the premise of government price setting in any form,"Brianna Wilkins, a company spokesperson said in an email. The shift to demanding lower prices will disrupt the competitive marketplace for prescription drugs and discourage the development of new medicines, she said.
A spokesperson for Merck, whose diabetes medicine Januvia is in the crosshairs of the drug pricing law, pointed to the company’s lawsuit against the government, which claims it violates the US Constitution and could hurt future investment in new medicines.
Pfizer said in a statement price-setting of its breast cancer drug IBRANCE may broaden racial disparities because it’s generated the “the greatest amount of Real World Evidence in underserved populations.” The company also expressed concern that small molecule drugs like IBRANCE, are subject to price negotation four years earlier than more complex drugs known as biologics.
“Pfizer shares the industry’s perspective that the ‘pill penalty’ may disincentivize manufacturers from conducting R&D on small molecules or in the years following a medicine’s initial FDA approval. It is a fact that U.S. patients typically have earlier and greater access to new medications than patients in countries with government price setting policies, something that may now be at risk as a consequence of the IRA,” the company said.
‘Safe Bets’
Supporters of negotiation say the prices of these drugs have risen too high in recent years.
The price tags of drugs in Medicare’s top-spend list have increased well above inflation, and many are expected to be announced in September, according to an analysis by AARP.
“The Eliquis and Xareltos of the world, I think those are safe bets” for Medicare price negotiation, Purvis said during a press conference.
Medicare spending on oral blood thinners such as Eliquis and Xarelto increased 16-fold from 2011 to 2019 to more than $7 billion annually, according to a 2021 study in JAMA Health Forum. Researchers attributed those rising costs to more Medicare beneficiaries enrolling in Part D, rising costs, and a shift away from warfarin.
The next two costliest drugs for Medicare, Januvia and Jardiance, both treat patients with Type 2 diabetes, which affects about 10% of Americans. The US spends more than $240 billion annually in diabetes care, and the Medicare program pays for almost 60% of that spending, an Avalere studyfound. Meanwhile, a KFF analysisfound five of the 10 top-selling Part D drugs in 2021 treated diabetes, including Januvia and Jardiance.
Merck has a program that makes Januvia free, but the company typically offers it to uninsured patients, not those on Medicare or Medicaid. Boehringer Ingelheim, and Eli Lilly have a similar program for Jardiance.
The negotiation provisions of the bill would reduce Medicare’s spending on medicines by more than $101 billion, according to a Congressional Budget Office analysis.
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