How will Medicare decide a fair price for drug negotiations?
How will Medicare decide a fair price for drug negotiations?
The Biden administration announced yesterday the first 10 prescription medications that it will negotiate prices for as part of a change to Medicare, part of the Inflation Reduction Act signed into law last year. For the first time, Medicare can push for lower prices on some drugs. The list includes some of the most widely used medicines, like blood thinner Eliquis and rheumatoid arthritis drug Enbrel.
Dan Gorenstein, host and executive editor of the nonprofit health policy news organization Tradeoffs, spoke about these changes with “Marketplace Morning Report” host Nancy Marshall-Genzer. The following is an edited transcript of their conversation.
Nancy Marshall-Genzer: Medicare, the federal insurance program that covers some 65 million people, is one of the pharmaceutical industry’s biggest customers. It spends north of $100 billion a year on medications. But until Congress passed the Inflation Reduction Act last year, Medicare had never been able to directly negotiate drug prices. So what now?
Dan Gorenstein: Medicare just named its first targets, 10 of the highest-cost drugs. First, those drugmakers have to decide whether to belly up to the negotiating table, Nancy. If they refuse, they’ll face huge fines. Then Medicare has this one big question: What is a fair price for these drugs? To answer that, they’ll look at a whole bunch of data, how well these meds work, how much they cost to make. But they haven’t said how they’ll combine those ingredients to land their price. I loved how Steve Pearson, who heads up ICER [Institute for Clinical and Economic Review], a kind of nonpartisan drug-pricing think tank, describes this.
Steve Pearson: At least what Medicare has started out with sounds a little bit more like you take a pinch of this, a pinch of that, and you throw it in a blender, and you see what happens.
Gorenstein: All told, Nancy, this new negotiation power is expected to save Medicare $100 billion over the next decade.
Marshall-Genzer: And no surprise here, but I know pharma is upset about this. They’ve already filed eight lawsuits. What’s this about, Dan? Just money?
Gorenstein: I mean, yes. Drugmakers stand to lose hundreds of billions of dollars over the next few decades. But pharma argues it’s more than cash, that if you make selling drugs less lucrative, companies will stop making risky investments to develop, say, the next game-changing cancer drug. Here’s Lauren Neves from PhRMA [the trade group representing companies in the pharmaceutical industry].
Lauren Neves: We may not see the immediate impact of this on innovation tomorrow. But we are definitely going to see it for patients 10 years from now, patients 20 years from now.
Marshall-Genzer: Any sense how or if this new policy will curb those future cures?
Gorenstein: That’s the question, but no one really knows, Nancy. Now, there are some estimates: The federal government calculates it’ll just be a few new drugs a year. One industry trade group put it at nearly 150 in the next decade alone. Some of the best evidence that we have comes from economists at Northwestern University, and they found any drugs we do lose are likely to be at the edges, not the big-time blockbusters that we all want.
Marshall-Genzer: So where do we go from here? What’s next?
Gorenstein: By next February, Medicare will make its opening price offers. Drugmakers get one chance to counter, then the two sides go back and forth, haggle for a few more months. But, by next fall, Medicare will be, like, “This is our best and final offer, take it or leave it.” And those lower prices will take effect in 2026. Then Medicare gets to do this whole process all over again for 15 drugs next year, and a total of up to 60 drugs by the end of this decade.
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