Cost Cuts for 10 Medicare Part D Drugs: Billions Still to Be Made

On Thursday, the U.S. government officially released the final prices for the first 10 drugs under Medicare Part D. These drugs will undergo price negotiations as part of the Biden administration’s Inflation Reduction Act. While savings won’t materialize until 2026, the White House’s announcement marks a significant step in negotiations with drugmakers to lower high-cost medicine prices. Medicare beneficiaries, primarily Americans aged 65 and older, will see these prices. Consequently, the new prices will impact a significant portion of the elderly population. 

CMS Sets ‘Maximum Fair Prices’ for 10 Drugs, Reducing List Costs by 38% to 79%

The Centers for Medicare & Medicaid Services (CMS) announced on the 15th that it will lower Medicare Part D prices for 10 drugs starting in 2026. This move follows the Inflation Reduction Act of 2022, which allows Medicare to negotiate prices for high-cost, single-source medications lacking generic or biosimilar alternatives. CMS selected these 10 drugs in 2023 for the inaugural round of negotiations. On August 1, the agency finalized “Maximum Fair Prices” with pharmaceutical companies for these medications.

Although the new prices will not take effect until 2026, the White House views this as a crucial step toward reducing out-of-pocket costs for Medicare beneficiaries. Consequently, negotiations have cut list prices for these drugs by 38% to 79%, addressing common conditions such as diabetes and blood clots. This development marks the beginning of the Biden-Harris administration’s effort to lower healthcare costs through the Inflation Reduction Act.

The 10 drugs include Eliquis for blood clots, Jardiance for diabetes, heart failure, and chronic kidney disease, Xarelto for blood clots and artery disease, Januvia and Farxiga for diabetes, Entresto for heart failure, Enbrel for rheumatoid arthritis, psoriasis, and psoriatic arthritis, Imbruvica for blood cancers, Stelara for psoriasis, psoriatic arthritis, Crohn’s disease, and ulcerative colitis, and the NovoLog family for diabetes.

Merck and Novo Nordisk See Largest Price Cuts; AbbVie and Novartis Experience Smallest Reductions

The 10 drugs with newly finalized Medicare Part D prices represent a major shift for pharmaceutical companies. For example, Merck’s (NYSE: MRK) Januvia saw the largest reduction, with a 79% cut from its 2023 price, now at $113. Novo Nordisk’s (OTCPK: NONOF) insulin therapy, including Fiasp and NovoLog, experienced a 76% decrease, bringing the price to $119. AstraZeneca’s (NYSE: AZN) Farxiga also saw a significant reduction of 68%, now costing $178.50.

Similarly, Immunex’s (acquired by Amgen, NASDAQ: AMGN) Enbrel was reduced by 67%, priced at $2,355. Boehringer Ingelheim’s (private) Jardiance dropped 66%, with a new price of $197. Janssen’s (NYSE: JNJ) Stelara decreased by 66%, now priced at $4,695. Jassen’s (Boehringer Ingelheim’s US subsidiary) Xarelto faced a 62% reduction, costing $197. Bristol Myers Squibb’s (NYSE: BMY) Eliquis saw a 56% cut, now priced at $231. Novartis’ (NYSE: NVS) Entresto dropped by 53%, with a new price of $295. Finally, AbbVie’s (NYSE: ABBV) Imbruvica, reduced by 38%, now costs $9,319. Given these substantial price cuts, drug companies will closely monitor market impacts. Despite these reductions, billions in revenue remain at stake for these companies.

Projected $6 Billion Medicare Savings; $1.5 Billion Expected in Beneficiary Cost Reductions

The program, launching in 2026, allows CMS to negotiate Medicare Part D drug prices for the first time. This shift aims to reduce prescription drug costs for older Americans and could significantly impact both the Medicare program and its recipients. If the negotiated prices had been in place in 2023, Medicare would have saved an estimated $6 billion in net prescription drug costs. This change would also have led to a 22% reduction in overall Medicare spending. Beneficiaries with Medicare prescription drug coverage are expected to save about $1.5 billion once the new prices take effect.

Additionally, the savings will complement provisions from the Inflation Reduction Act, including a cap on out-of-pocket drug costs and a $35 monthly limit on insulin costs for diabetics. Moving forward, the negotiated prices will apply to each medication under the Medicare drug price negotiation program. Each year after 2026, CMS will update these prices based on the Consumer Price Index for urban consumers. Moreover, CMS may revise the prices if renegotiations with pharmaceutical companies occur.

These drugs, covering diabetes, cardiovascular disease, blood thinners, and cancer, are essential in the market. Consequently, this policy will reduce government and individual expenditures while potentially altering global pharmaceutical pricing strategies. Although pharmaceutical companies have mixed reactions, the new policy represents a significant shift and may encourage other countries to adopt similar measures to control drug costs.

Author

Bernice Lottering