Medicare Negotiates to Make Costly Drugs More Affordable for Older Americans
Introduction
Medicare is taking a step to negotiate prices for ten different drugs with manufacturers in an effort to increase affordability for older Americans. This move is opposed by the pharmaceutical industry, but analysts believe that the financial impact on manufacturers will be limited, at least for the first set of prescription medicines. Other factors, such as competition and patent expirations, are already expected to impact the revenue and profits of these drugs.
Details of the Negotiation Process
The Biden administration recently released the much-awaited list of drugs that will be subject to negotiation. The negotiation process is set to conclude in August 2024, with reduced prices taking effect in January 2026. The list includes drugs with the highest spending for Medicare Part D, which covers prescription medications, from June 2022 to May 2023. Some of the drugs on the list are blood thinners from Bristol-Myers Squibb and Johnson & Johnson, as well as diabetes drugs from Merck and AstraZeneca.
Challenges and Pending Lawsuits
There is a possibility that the negotiated prices may not go into effect due to ongoing lawsuits filed by several drugmakers, including those with medications on the list. These lawsuits could result in split appellate court decisions and potentially fast-track the dispute to the Supreme Court. Additionally, the U.S. Chamber of Commerce is seeking a preliminary injunction to halt the negotiations before October 1, the deadline for drugmakers to sign agreements to participate.
Impact on Drugs with Patent Expirations and Branded Competition
The negotiated prices in 2026 may have minimal financial impact on drugs that are already expected to see a decline in revenue and profits due to upcoming patent expirations and competition from branded alternatives. For example, drugs like Merck’s Januvia and AstraZeneca’s Farxiga are anticipated to lose exclusivity in 2026, which will open the market to cheaper generic alternatives. Similarly, Johnson & Johnson’s Xarelto and Novartis’ Entresto are expected to lose exclusivity in 2027. This means that negotiated prices may only impact these drugs for a short period before generic competition minimizes the effect.
Specific Drugs on Medicare’s List
The list includes various drugs such as Eliquis, Jardiance, Xarelto, Januvia, Farxiga, Entresto, Enbrel, Imbruvica, Stelara, Fiasp, and NovoLog. These drugs are used for the prevention of blood clotting, reduction of stroke risk, control of blood sugar levels in Type 2 diabetes, treatment of heart failure, rheumatoid arthritis, Crohn’s disease, and various blood cancers.
Potential Future Impact
While the current negotiations may not have a significant immediate impact, analysts believe that future negotiations, especially targeting drugs in Medicare Part B, could have a more significant effect. Medications in Part B are more specialized and expensive, and negotiations could impact the earnings and growth of pharmaceutical companies. This could also influence drug development strategies as maintaining pricing power becomes more challenging.
In summary, Medicare’s negotiation of drug prices aims to make costly treatments more affordable for older Americans. The initial round of negotiations may have limited financial impact due to factors such as competition and patent expirations. However, future negotiations targeting more expensive medications could have a more significant long-term effect on manufacturers.
