Medicare announced the next wave of 15 prescription drug charges on January 17, 2025 … [+]
Medicare officials announced yesterday’s selection of the second round of the 15 top-selling prescription drugs for price negotiations, as part of a program created by the Inflation Reduction Act and signed into law by President Biden in 2022. The intent of the legislation is to reduce the cost of medications for seniors and the disabled. The selection of these fifteen drugs comes just days before President-elect Trump will be inaugurated and his next administration will take charge of the executive branch, including the Centers for Medicare and Medicaid Services. It is not known whether the new Trump administration plans to pause or adjust the drug price negotiation program, or whether it will move forward with last month’s Biden administration proposal to include anti-obesity drugs in Medicare to draw attention to.
The two key drug pricing provisions of the IRA aim to reduce out-of-pocket costs for Medicare beneficiaries by lowering the net prices of certain top-selling products through government-led negotiations and through the outpatient pharmacy benefit, Part D called, to be redesigned, limiting the annual compensation for the recipient. out-of-pocket expenses, first at $3,300 in 2024 and then at $2,000 in 2025.
The 15 drugs selected for negotiation this week are currently roughly prescribed 5.3 million Medicare beneficiaries for the treatment of conditions ranging from cancer and type 2 diabetes to asthma. The drugs include several well-known names, such as the successful diabetes and weight-loss drugs Ozempic and Wegovy, and the chronic obstructive pulmonary disease and asthma drug Trelegy. The drugs accounted for approximately $41 billion in gross spending under Medicare’s outpatient drug benefit, Part D, for the period November 1, 2023 through October 31, 2024.
Because of how CMS defines “single-source qualifying drugs” in its IRA guidelines as all formulations of the same active ingredient, Rybelsus, Ozempic and Wegovy – the three products are based on semaglutide – were lumped together as one drug.
Medicare’s selection of drugs at each round triggers the start of negotiations that will last about a year. After manufacturers sign pricing agreements with CMS, indicating their participation in the program, a offer-and-counter-offer process begins between the federal government and drug manufacturers. The IRA statute sets a ceiling price for CMS’ initial offer. In turn, drug manufacturers can provide evidence in their counteroffers to support the drugs’ relative 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 agreed upon by CMS and the drug manufacturers will be implemented in two years, in January 2027.
In the first round of ten drugs, negotiated between August 2023 and August 2024, CMS estimated that the announced maximum fair prices for the first ten medicines would have reduced net government expenditure by 22% in 2023. But this was plausibly an overestimate. The comparison of negotiated prices and net prices cannot strictly be interpreted as savings, because for drugs selected for negotiation, manufacturers are not required to pay mandatory rebates under Part D’s newly redesigned pharmacy benefit: 10% in the initial coverage phase; 20% in the catastrophic phase. CMS pays these discounts. Nevertheless, there is likely to be net price erosion to varying degrees for the ten selected products. And this also applies to the fifteen medicines chosen this week.
Once prices for these drugs are implemented in 2026, Medicare beneficiaries are expected to save a total of $1.5 billion in out-of-pocket drug costs, with some of the savings due to their deductible and co-insurance cost share based on negotiated instead of list prices. Furthermore, brand-name drug prices have risen faster than general inflation for decades. This can be especially challenging for some Medicare Part D participants, who use an average of four or five prescription drugs per month and often face cost sharing that is directly affected by increases in list prices. 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 medications.
Lowering the net prices of products like Wegovy could also pave the way for possible insurance coverage of weight loss medications in Medicare. The Biden administration proposed in December that Medicare would lift its ban on coverage of obesity medications. CMS’s proposed new rule would do that reinterpret the current statute to “authorize coverage of obesity medications.”
However, it is unclear whether the new Trump administration will seek to repeal the IRA in its entirety, including its drug pricing provisions, or seek changes to the existing law. For example, the next government could push for international benchmarking of prices, known as the most favored nation model. Broadly speaking, this is a system of price controls in which an average or minimum price for a group of countries with similar gross domestic production per capita can serve as an anchor towards which different prices can converge over time. It could lead to substantially lower drug prices in Medicare, perhaps lower than what current IRA bargaining arrangements provide.
It is also far from clear whether the next administration will maintain or reject the Biden administration’s proposed lifting of the ban on obesity drug coverage in Medicare. On the one hand, CMS administrator candidate Mehmet Oz has expressed support for using the latest wave of weight loss drugs, including Ozempic, Wegovy and Zepbound. In contrast, the person potentially in charge of the Department of Health and Human Services and Oz’s boss, Robert F. Kennedy Jr., has been an outspoken critic of such drugs.