Biden administration's Medicare drug price negotiations will face major tests in 2024

U.S. patients and drugmakers will get a first glimpse of how much Medicare can negotiate down drug prices in 2024, setting the precedent for a controversial process that may affect what seniors pay for dozens of medications by the end of the decade. 

It could also be a pivotal year for the lawsuits that drugmakers – including Merck, Johnson & Johnson and Bristol Myers Squibb – have filed against the price talks. Decisions could come down in some of the cases next year, which could eventually escalate the issue to the Supreme Court.

President Joe Biden’s Inflation Reduction Act, which passed in a party-line vote last year, gave Medicare the authority to directly hash out drug prices with manufacturers for the first time in the federal program’s nearly 60-year history. 

Medicare is negotiating prices for the first round of 10 prescription drugs in a bid to make those costly treatments more affordable for older Americans. By the fall, the federal government will publish the agreed-upon prices for those medications, which will go into effect in 2026. 

The outcomes of the talks will have huge stakes for the pharmaceutical industry, which views the process as a threat to its revenue growth, profits and drug innovation.

The final prices will determine how much revenue the companies that make the drugs can expect to lose in a few years. The figures will also give other drugmakers an idea of how much their sales could be affected if their medications are selected for future rounds of negotiations. 

But the final agreed-upon prices are also significant for patients, who will get a first look at how much money the talks will save them at a time when many older people increasingly struggle to afford medications. 

“We’re going to see how much that program is able to negotiate and it’ll give patients who are already on [the drugs] an idea of the savings they’re going to see,” said Leigh Purvis, a prescription drug policy principal at the AARP Public Policy Institute.

AARP is the influential lobby group that represents people older than 50. The organization has advocated for Medicare’s new negotiation powers.

The drugs subject to the negotiations are among the top 50 with the highest spending for Medicare Part D, which covers prescription medications that seniors fill at retail pharmacies. 

In 2022, 9 million seniors spent $3.4 billion out of pocket on the 10 drugs, and some paid more than $6,000 per year for just one of the medications on the list, according to the Biden administration.

Nearly 10% of Medicare enrollees ages 65 and older, and 20% of those under 65, report challenges in affording drugs, the administration said in August. 

Medicare covers roughly 66 million people in the U.S., and 50.5 million patients are currently enrolled in Part D plans, according to health policy research organization KFF.

The Biden administration officially kicked off the negotiation process in August when it named the first round of medications subject to the price talks. They include diabetes drugs from Merck and AstraZeneca, and blood thinners from Bristol Myers Squibb and Johnson & Johnson.

Two months later, all companies that make the drugs on the list signed agreements to participate in the negotiations, even after most of them sued the Biden administration to halt the talks. 

But the actual negotiation period will begin on Feb. 1, when the Centers for Medicare & Medicaid Services will make initial “maximum fair price” offers for each of the 10 drugs selected. CMS is required to include a justification for why the price is fair based on several factors.

That includes U.S. sales volume data, a manufacturer’s research and development costs, federal financial support for the drug’s development, data on pending or approved patent applications and exclusivities, or a period of time when a brand-name drug is protected from generic competition. 

After receiving the offers, companies have a month to accept it or counter it. Negotiations end when CMS and drugmakers reach an agreement. 

If CMS rejects the counteroffer for a drug, the agency can arrange up to three meetings with the drugmaker to discuss other price options. 

CMS has to make final price offers to the manufacturers by July 15, and those companies have two weeks to accept or reject them. If drugmakers fail to agree on a price with Medicare by Aug. 1, they may be forced to pay an excise tax of up to 95% of a medication’s U.S. sales or pull all of their drug products from the Medicare and Medicaid markets. 

CMS will publish agreed-upon prices on Sept. 1. 

After the initial round of talks, CMS can negotiate prices for another 15 drugs that will go into effect in 2027 and an additional 15 that will go into effect in 2028. The number rises to 20 negotiated medications a year starting in 2029.

CMS will only select Medicare Part D drugs for the medicines covered by the first two years of negotiations. It will add more specialized drugs covered by Medicare Part B, which are typically administered by doctors, in 2028. 

The legal fight between drugmakers and the Biden administration could also see crucial developments in 2024, as cases may start moving to appeals courts. 

Merck, Johnson & Johnson, Bristol Myers Squibb, AstraZeneca, Novo Nordisk, Novartis and Boehringer Ingelheim are all suing to halt the negotiation process. Each of the companies has one drug selected for negotiations. 

The industry’s biggest lobbying group, PhRMA, and the nation’s largest business lobbying organization, the U.S. Chamber of Commerce, have filed their own lawsuits. A federal judge in September denied a preliminary injunction sought by the Chamber of Commerce, which aimed to block the price talks.

All of the drugmakers and both trade groups have asked for summary judgments in their cases against the Biden administration, arguing the price talks are unconstitutional and must be struck down. 

Decisions in most of those cases could occur in the next six months, according to Kelly Bagby, vice president of litigation at the AARP Foundation. 

She said that regardless of what the decisions are, they will likely get appealed to federal appellate courts across the U.S. The pharmaceutical industry may be trying to obtain conflicting rulings from those appeals courts, which could fast-track the issue to the Supreme Court, Bagby added. 

“The Supreme Court would feel obliged to take the case and evaluate the constitutionality of the Inflation Reduction Act itself,” Bagby said, noting that the issue may not reach the nation’s highest court until 2025. 

Some drugmakers, such as Merck, have already confirmed they want to bring their legal battle to the Supreme Court.

Drugmakers in the lawsuits argue the negotiations would force them to sell their medicines at huge discounts, below market rates. They assert that this violates the Fifth Amendment, which requires the government to pay reasonable compensation for private property taken for public use.