Medicare officials announced the selection yesterday of the second round of 15 top-selling prescription drugs for price negotiations, as part of a program established by the Inflation Reduction Act and signed into law by President Biden in 2022. The legislation’s intent is to lower the cost of medications for seniors and disabled folks. The selection of these 15 medications comes just days before President-elect Trump will be inaugurated and his next administration will be in charge of the executive branch, including the Centers for Medicare and Medicaid Services. It’s unknown whether the incoming Trump administration intends to pause or modify the drug price negotiation program, and if it will move ahead with last month’s proposal by the Biden administration to cover obesity drugs in Medicare.
The IRA’s two main drug pricing provisions aim to lower the Medicare beneficiaries’ out-of-pocket cost burden by reducing the net prices of certain top-selling products through government-led negotiations and redesigning the outpatient pharmacy benefit called Part D, capping recipient annual out-of-pocket expenses, first at $3,300 in 2024 and then at $2,000 in 2025.
The 15 drugs selected this week for negotiation are currently prescribed to roughly 5.3 million Medicare beneficiaries to treat conditions ranging from cancer and type 2 diabetes to asthma. The medicines include multiple household names, such as the blockbuster diabetes and weight loss drugs Ozempic and Wegovy, and the chronic obstructive pulmonary disease and asthma pharmaceutical Trelegy. The medications accounted for approximately $41 billion in gross spending under Medicare’s outpatient drug benefit, Part D, over the period Nov. 1, 2023 through Oct. 31, 2024.
Because of the way CMS defines “qualifying single source drugs” in its IRA guidance as all formulations of the same active ingredient, Rybelsus, Ozempic and Wegovy— the three products are semaglutide-based—were lumped together as one medicine.
Medicare’s selection of pharmaceuticals each round triggers the start of negotiations that will take about one year to complete. After manufacturers sign price agreements with CMS, signaling their participation in the program, an offer-and-counteroffer process begins between the federal government and drug makers. The IRA statute sets a ceiling price for the initial offer by CMS. In turn, in their counteroffers drug makers may provide evidence supporting the drugs’ comparative clinical benefit, the extent to which they address unmet medical needs, their impact on specific populations such as the elderly and disabled who rely on Medicare and other considerations, such as research and development costs. The prices settled upon by CMS and drug makers will be implemented two years from now, in Jan. 2027.
In the first round of ten drugs, negotiated between Aug. 2023 and Aug. 2024, CMS estimated that the announced maximum fair prices for the first ten pharmaceuticals would have decreased net government spending by 22% in 2023. But this was plausibly an overestimate. The comparison of negotiated and net prices cannot strictly be interpreted as savings, because for drugs selected for negotiation, manufacturers won’t be paying mandatory discounts under the newly redesigned Part D pharmacy benefit: 10% in the initial coverage phase; 20% in the catastrophic phase. CMS will pay these discounts. Nonetheless, there will likely net price erosion in varying degrees for the 10 selected products. And this will apply to the 15 drugs chosen this week, too.
Once the prices of these medications are implemented in 2026, Medicare beneficiaries are expected to save in aggregate $1.5 billion in out-of-pocket costs on pharmaceuticals, with a portion of the savings due to their deductible and co-insurance cost-share based on negotiated rather than list prices. Also, brand-name drug list prices have been increasing faster than the rate of general inflation for decades. This can be particularly challenging for some Medicare Part D enrollees, who take an average of four or five prescription drugs every month and often face cost-sharing that is directly affected by list price increases. One in five older adults report engaging in cost-coping strategies such as not filling a prescription or skipping doses to save money on their prescription medication.
Lowering the net prices of products such as Wegovy could also pave the way for possible insurance coverage of weight loss drugs in Medicare. The Biden administration proposed in Dec. that Medicare lift its prohibition of coverage of obesity drugs. The proposed new rule issued by CMS would reinterpret the current statute to “permit coverage of anti-obesity medications.”
It’s unclear, however, if the incoming Trump administration will try to repeal the IRA in its entirety, including the drug pricing provisions, or pursue changes to the existing law. For example, the next administration could push for international benchmarking of prices, sometimes called the most favored nation model. Broadly, this is a system of price controls in which an average or minimum price across a group of countries with similar gross domestic output per capita can serve as an anchor towards which differing prices may converge over time. It could lead to substantially reduced prices of drugs in Medicare, perhaps below what the current IRA negotiation arrangements achieve.
It’s also far from clear whether the next administration will keep or nix the Biden administration’s proposed lifting of the prohibition on coverage of obesity drugs in Medicare. On one hand, the nominee for CMS administrator, Mehmet Oz, has voiced support for the use of the latest wave of weight loss drugs, including Ozempic, Wegovy and Zepbound. By contrast, the person who may be in charge of the Department of Health and Human Services and Oz’s boss, Robert F. Kennedy Jr., has been a vocal critic of such drugs.
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