What will happen in Biden’s Medicare drug pricing negotiations?

The Biden administration on Thursday reached a milestone in Democrats’ decade-long effort to use Medicare to reduce prescription drug costs, releasing new prices for the first 10 drugs subject to negotiations between the federal program and drugmakers.

But the announcement is just the start of a controversial multi-round process that could save taxpayers and older Americans more money and put more pressure on drug companies over time. It’s a key provision of President Joe Biden’s Inflation Reduction Act, which was signed into law almost exactly two years ago.

The agreed prices, which will take effect in 2026, set the precedent for future rounds of negotiations starting next year. Those talks are likely to influence prices for years to come for dozens of the most widely used drugs made by the world’s largest pharmaceutical companies.

“I think the expectation that people should have is that this is just the beginning. These are just the first 10 drugs,” said Leigh Purvis, director of prescription drug policy at the AARP Public Policy Institute, an arm of the influential lobbying group representing people over 50, which has championed Medicare’s negotiating powers.

“Sometimes people get caught up in the fact that their drug is not on the list, but it will be there in the future if they are taking a drug that carries a high cost,” Purvis added.

It’s unclear how much lower the negotiated prices are than the current net prices for the top 10 drugs, which are heavily discounted by Medicare Part D plans. Those net prices aren’t publicly available, making it difficult to know how much a Medicare plan and patient would actually save on a given drug when negotiated prices begin in 2026. Copayments could also vary depending on which Part D plan a patient has.

“It’s hard to know where you’re coming from because … those numbers aren’t publicly available,” said Tricia Neuman, executive director of the Medicare Policy Program at the health policy research organization KFF, referring to net prices after rebates.

However, the Biden administration estimates that the new negotiated drug prices will lead to approximately $6 billion in net savings for the Medicare program and $1.5 billion in direct savings for beneficiaries in 2026 alone.

The negotiations “seem to be going relatively smoothly; the overall savings are quite impressive,” Neuman said. He added that as more drug prices are discussed in future rounds, “the level of savings will increase over time.”

The price talks could also put more pressure on drugmakers in the coming years. Many of the drugs in the first round of negotiations are already coming off patent, which will open the market to competition from cheaper generics, which will take a chunk of revenue.

For example, Bristol Myers SquibbThe blood thinner Eliquis is set to lose patent exclusivity in the United States starting April 1, 2028. The blockbuster drug is also at risk of patent expiration in some EU markets in 2026.

But over time, drugs that are much further away from losing market exclusivity could be selected for future rounds of deals, Leerink Partners analyst David Risinger said in a research note Thursday.

By February 2025, the Biden administration will select up to 15 more drugs to go through the next round of pricing negotiations, with new prices taking effect in 2027. Manufacturers will have until the end of February to decide whether to participate in the program, an obvious choice for companies, which face high excise taxes or loss of access to federal Medicare and Medicaid programs if they don’t.

“It will get more painful over time,” Jeff Jonas, portfolio manager at Gabelli Funds, said in a statement Thursday. He noted, for example, that the next round of pricing negotiations will likely include New Nordiskthe best-selling diabetes drug, Ozempic.

Jonas added that “there has been speculation that the government has been lenient with pharmaceutical companies this year, given that it is an election year and it is the first time they have done so.”

After the second round, the Centers for Medicare and Medicaid Services will be able to negotiate prices for 15 more drugs that will take effect in 2028. That number will increase to 20 per year starting in 2029.

CMS will select only Medicare Part D drugs for covered medications in the first two years of negotiations. It will add more specialized drugs covered by Medicare Part B, which are typically administered by physicians, for the round that goes into effect in 2028.

This could pose an even greater threat to the pharmaceutical industry, since drugs covered by Medicare Part B are not discounted as sharply as those covered by Part D.

“My guess, since the discounts are limited, is that they have a larger share than the Part D drugs that are widely discounted,” Risinger told Vscek in an interview, referring to drugs covered by Part B.

Jonas noted that negotiations for 2028 price changes could include some big cancer drugs, such as Merck’the successful chemotherapy Keytruda.

Vice President Kamala Harris, the Democratic presidential nominee, will likely seek to broaden the scope of negotiations if elected and “will probably be more aggressive on discounts,” Jonas said.

But Neuman said whether he can pass a bill to strengthen the policy will depend on which party controls the House and Senate. Harris herself had to cast a tie-breaking vote in the Democratic Senate to pass the original bill.

“There is some interest among Democrats in Congress to do that, but obviously the legislation will depend on which party is in control,” Neuman said.

The pharmaceutical industry has argued that the negotiations could negatively impact its revenues, profits and innovation in the long term.

For example, Steve Ubl, chief executive of the drug industry’s largest lobbying group, PhRMA, said Thursday that price negotiations could result in reduced treatments for cancer, mental health, rare diseases and other conditions because they “fundamentally alter” the incentives for drug development.

Medicare can begin negotiating prices for small-molecule drugs as early as nine years after they receive U.S. Food and Drug Administration approval, compared with 13 years for biologics. Small-molecule drugs are made from low-molecular-weight chemicals, while biologics are derived from living sources such as animals or humans.

The industry argues that this distinction will discourage companies from investing in small-molecule drugs.

— Vscek’s Angelica Peebles contributed to this report