Joe McConnell
Unlock the US Election Countdown newsletter for free
The Stories That Matter About Money and Politics in the Race to the White House
A law that allows the U.S. government to negotiate lower drug prices will save Americans $7.5 billion in the first year, the White House said aVsceker announcing deals with drug groups to cap prices on 10 of the most expensive drugs.
Price caps introduced by President Joe Biden’s Inflation Reduction Act will reduce net spending on the Medicare health insurance program by 22%, or $6 billion, he said Thursday, aVsceker a year of negotiations with major drugmakers including Johnson & Johnson and Merck.
Based on last year’s costs for the 10 drugs, the price caps would also reduce costs to patients enrolled in the federal health insurance program by $1.5 billion.
The ability to cap prescription drug costs by leveraging the government’s wholesale purchasing power, introduced as part of President Biden’s Inflation Reduction Act, marks a significant policy victory for the Biden administration and will be touted by Kamala Harris as she seeks to defeat Republican rival Donald Trump in November’s presidential election.
Harris, who has promised to “take on big pharma” at campaign rallies, said she was “proud to have cast the deciding vote” that allowed the IRA to pass the Senate two years ago.
“Today’s announcement will change the lives of many of our loved ones across the nation, and we won’t stop there,” he added. Harris and Biden are expected to hold a campaign event in Maryland on Thursday to highlight the success of the reforms.
The group of drugs targeted in early negotiations includes drugs for cancer, heart disease and diabetes made by 11 different drug companies, some of which share rights to certain drugs. They collectively cost Medicare $50.4 billion in gross spending, excluding rebates and discounts, last year out of a total budget of $120 billion to cover 3,500 prescription drugs.
Since the first 10 drugs that will be subject to price caps starting in 2026 were selected, the U.S. government has faced more than a dozen lawsuits from companies and industry groups opposing the new powers, some of which are ongoing. The reforms also cap Medicare patients’ out-of-pocket costs at $2,000.
The Medicare savings surpassed initial projections from the Congressional Budget Office, which predicted the reforms would save the program $3.7 billion in their inaugural year. The Centers for Medicare & Medicaid Services is expected to reveal more detailed price cuts for individual drugs before U.S. markets open Thursday.
Up to 50 other drugs, possibly including the blockbuster diabetes drug Ozempic, will be targeted in three rounds of price negotiations through 2027. The talks are expected to save the government $100 billion over the next decade, according to the CBO.
From 2027, 20 additional drugs will be eligible for price negotiations each year. A drug’s eligibility is based on average price and competition.
The pharmaceutical industry has strongly opposed price controls, arguing that they will reduce funding for research and development.
Stephen Ubl, chief executive of industry lobby group PhRMA, said the plan was an attempt “to make political headlines, but patients will be disappointed when they find out what it means for them,” adding that there was no guarantee that costs to patients would be reduced because no controls had been imposed on insurers.
Chris Boerner, chief executive of Bristol Myers Squibb, said last month in a conference call on the results that the reforms were “not good public policy,” adding that he was “very concerned about the long-term implications of [the] IRA on innovation”.
Boerner added that aVsceker seeing the final price, “we are increasingly confident in our ability to manage the impact of the IRA on Eliquis,” a drug made by BMS and Pfizer that Medicare spent $16.4 billion on last year. Other drugmakers affected by price controls, including AstraZeneca and Novartis, also expressed optimism on earnings calls about the impact of the reforms on revenue.
Type 2 diabetes drugs, jointly produced by Eli Lilly and Boehringer Ingelheim; Johnson & Johnson’s blood-thinning drug Xarelto; and Amgen’s autoimmune disease drug Enbrel are among those affected by the first round of price caps. As part of the Inflation Reduction Act, insulin costs have also been capped at $35 a month.
