What’s Next for Biden’s Medicare Drug Price Negotiations?

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

But the announcement is just the beginning of a controversial, multifaceted process that could save more money for taxpayers and older Americans and put more pressure on drug companies over time. It’s a key provision of President Joe Biden’s signature anti-inflation law, which was signed into law almost exactly two years ago.

THE agreed priceswhich will enter into force in 2026, set the precedent for future rounds of negotiations starting next year. Those talks will likely affect prices in the coming years for dozens of the most widely used drugs made by the world’s biggest pharmaceutical companies.

“I think the expectation people should have is that this is just the beginning. These are just the first ten drugs,” said Leigh Purvis, chief of prescription drug policy with the AARP Public Policy Institute, an arm of the influential lobby group representing people over 50, which has supported Medicare bargaining powers.

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

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

“It’s hard to know where to start, because … those numbers are not publicly available,” said Tricia Neuman, executive director for the Program on Medicare Policy at the health policy research organization KFF, referring to net prices after discounts.

But the Biden administration estimates that the new negotiated drug prices will result in about $6 billion in net savings for the Medicare program and $1.5 billion in out-of-pocket savings for beneficiaries in 2026 alone.

The negotiations “seemed to be going relatively smoothly — the overall savings are pretty impressive,” Neuman said. He added that as the prices of more drugs are broken down in future rounds, it will “increase the level of savings over time”.

Debates over price could also put more pressure on drugmakers in the coming years. Many of the drugs in the first round of negotiations are already nearing patent expirations, which will open up the market to competition from cheaper generics, which will reduce revenues.

For example, Bristol Myers SquibbEliquis’ blood thinner is expected to lose US patent exclusivity on April 1, 2028. The blockbuster drug also faces patent expirations in some EU markets in 2026.

But over time, drugs far from losing market exclusivity could be selected for future rounds of negotiations, Leerink Partners analyst David Risinger said in a research note Thursday.

With February 2025the Biden administration will select up to 15 more drugs to be subject to the next round of price talks, with the new prices taking effect in 2027. Manufacturers will have until the end of February to decide whether to join the program — a no-brainer for companies as they face high excise taxes or loss of access to federal Medicare and Medicaid programs if they don’t.

“It’s going to start to 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 price talks will likely include Novo NordiskThe best-selling diabetes drug Ozempic.

Jonas added that “there has been some speculation that the government has gone easy on pharmaceutical companies this year, given that it’s both an election year and the first time they’ve done that.”

After the second round, the Centers for Medicare and Medicaid Services can negotiate prices for 15 more drugs starting in 2028. That number increases to 20 a year starting in 2029.

CMS will only select Medicare Part D drugs for the drugs covered in the first two years of negotiations. It will add more specialty drugs covered by Medicare Part B, which are usually prescribed by doctors, for the round that takes effect in 2028.

This could be a bigger threat to the pharmaceutical industry, since Medicare Part B drugs are not subject to as high a discount as drugs covered by Part D.

“My hypothesis, since the rebates are limited, is that they should be reduced more than the heavily discounted Part D drugs,” Risinger told CNBC in an interview, referring to drugs covered by Part B .

Jonas noted that price change negotiations in 2028 could include some major cancer drugs, such as Merck’s blockbuster chemotherapy Keytruda.

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

But Neumann said whether she can pass legislation 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-controlled Senate to pass the original law.

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

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

For example, Steve Ubl, CEO of the pharmaceutical industry’s largest lobbying group, PhRMA, said in a statement Thursday that price discussions could lead to fewer treatments for cancer, mental health, rare diseases and other conditions, because it “fundamentally changes” incentives for drug development.

Medicare can begin negotiating prices for small-molecule drugs as early as nine years after receiving US Food and Drug Administration approval, compared with 13 years for biologics. Small molecule drugs are composed of chemicals that have a low molecular weight, while biologic drugs are derived from living sources such as animals or humans.

The industry has argued that the distinction is intended to deter companies from investing in small molecule drugs.

— CNBC’s Angelica Peebles contributed to this report