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Medicare's First Price Negotiation List Targets Expensive Drugs (Revised)
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The Centers for Medicare & Medicaid Services (CMS) released its first list of 10 drugs that have been selected for negotiations by Medicare directly with drug manufacturers under the U.S. government’s drug price negotiation program, as part of the Inflation Reduction Act (‘IRA”), announced in 2022
The Biden administration and Congress are taking several measures to control health care costs, including the cost of drugs.
In 2022, Congress passed the IRA, which made significant changes to how drugs are covered and paid for under Medicare. Every year, Medicare spends billions of dollars on reimbursing medicines. Under the IRA, the U.S. government gave authority to Medicare to negotiate the price of some prescription medicines directly with drug manufacturers, hoping to save the government billions of dollars. Before the IRA was passed, Medicare was not allowed any such negotiations with drug manufacturers.
Under the U.S. government’s drug price negotiation program, the Medicare Part D program was redesigned to require drugmakers to bear more of the liability for certain drug benefits and government price-setting for certain Medicare Part D drugs (starting in 2026) and Medicare Part B drugs (starting in 2028). The program also included penalties for significant increases in the prices of drugs.
The latest list for Medicare price negotiations released by CMS mostly includes expensive medicines for cancer, diabetes, auto-immune conditions and blood thinners. These medicines, covered under Medicare Part D, are taken by millions of Americans and account for a huge portion of Medicare spending annually. Some names on the list are Bristol-Myers (BMY)/Pfizer’s blood thinner, Eliquis, Eli Lilly (LLY)//Boehringer Ingelheim’s Jardiance and AstraZeneca’s (AZN) Farxiga for diabetes and heart failure, J&J (JNJ) and Amgen’s (AMGN) respective immunology medicines, Stelara and Enbrel and J&J/AbbVie’s cancer drug Imbruvica.
The negotiations with participating drug companies will be done in 2023 and 2024, with the negotiated prices, if any, going into effect in 2026.
All these actions by the U.S. government and any potential action will affect the sales and profits of big drugmakers like Bristol-Myers, Lilly, J&J, Amgen and others. However, for now, investors do not seem to be much concerned about the latest news on Medicare drug price negotiations. Stocks prices of most of these large drugmakers were not affected much in pre-market trading on Tuesday.
It remains to be seen how much CMS is able to negotiate with these large drugmakers as some of them like J&J, AstraZeneca and Merck have filed lawsuits against the U.S. government to delay or block the drug price negotiations. Biosimilar/generic versions of some of these drugs, like Stelara, are expected to be launched in a couple of years. This will anyway cause a decline in sales of these drugs. The impact of Medicare price negotiations on companies making these medicines should be limited.
Nonetheless, Medicare is giving manufacturers time till October to decide if they want to participate in the negotiation process and come to an agreed-upon maximum fair price through a back-and-forth process in a few months’ time. Fines might be imposed on companies that decide not to participate in the negotiation process or they may be required to exit the Medicare/Medicaid market.
(We are reissuing this article to correct a mistake. The original article, issued on August 30, 2023, should no longer be relied upon.)
AstraZeneca PLC (AZN): Free Stock Analysis Report
Bristol Myers Squibb Company (BMY): Free Stock Analysis Report
Johnson & Johnson (JNJ): Free Stock Analysis Report
Eli Lilly and Company (LLY): Free Stock Analysis Report
Amgen Inc. (AMGN): Free Stock Analysis Report
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