List Of 10 Drugs Medicare Will Negotiate Prices Of Contains Surprises

The Centers for Medicare and Medicaid Services announced its selection this week of the first 10 prescription drugs that will be subject to Medicare price negotiations under the Inflation Reduction Act. These pharmaceuticals are slated for negotiation between now and September 2024. While the majority of products on the list do not come as a surprise, it’s conspicuous that CMS included several drugs that could face imminent generic or biosimilar competition before 2026, which is when the negotiated prices first get implemented.

On October 1, after pharmaceutical manufacturers of the 10 drugs sign agreements to join the negotiations, CMS will then make an initial price offer for each product in February 2024. Drug companies have a month to accept or make a counteroffer. The negotiations will end in August 2024, with agreed-upon “maximum fair prices” published on September 1, 2024. These prices will be enacted in January 2026.

The 10 drugs selected to undergo negotiations include two blood thinners, Eliquis and Xarelto; three diabetes drugs, Januvia, Jardiance and Fiasp/NovoLog;* Enbrel, for rheumatoid arthritis; Imbruvica, for blood cancers; Farxiga, for diabetes, heart failure and chronic kidney disease; Entresto, for heart failure; and Stelara, for psoriasis and Crohn’s disease.

In terms of CMS’ selection-making process, what we know is what is written in the law and spelled out in CMS guidance. Any product chosen for price negotiation has to be in the top 50 of Medicare Part D (outpatient) gross spend; for small and large molecules, respectively, a drug must be seven or 11 years post approval; a drug must not face generic or biosimilar competition.

For most of the products selected by CMS, the current rebates negotiated with pharmacy benefit managers operating in Medicare Part D are quite large. This is because most of these pharmaceuticals are in robustly competitive classes where rebates are higher. These rebates factor into their net prices, which are much lower than their list prices. As such, CMS may find it difficult to achieve further net cost savings for these drugs.

However, it appears that the choices made by CMS aren’t driven by what the agency can achieve through negotiations in terms of net cost savings per drug. Rather, it’s the drug’s gross (based on list prices) expenditures that matters. This is in keeping with the intent of the law as each product selected must be in the top 50 in terms of gross Medicare spend. Indeed, CMS made a point of emphasizing that the 10 drugs accounted for $50.5 billion, or approximately 20%, of Medicare Part D gross expenditures from June 1, 2022, to May 31 of 2023.

It’s noteworthy that in the current situation the net prices pharmacy benefit managers negotiate aren’t passed through to Medicare beneficiaries. That is, patients’ co-insurance is calculated as a percentage of a drug’s list price. This will change in 2026 when the negotiated prices go into effect and co-insurance is based on the new net price.

Besides the publicly available information on which pharmaceuticals are eligible to be selected by CMS, we can’t know (we aren’t privy to) all the reasons why CMS chose this particular subset. This is mostly due to not having access to the most updated Medicare spend data.

Examining the 10 selected products, we observe that experts such as Hernandez and Dickson, who predicted which pharmaceuticals CMS would target, got the majority (six) right. And several of the ones they thought would be selected this year will likely be picked in the second round of 15 drugs that will be announced in 2025.

The inability to access the very latest Medicare spend data implies that it’s impossible to have foreseen changes in gross Medicare spending since 2020, which put Farxiga, Entresto, Stelara and Fiasp/NovoLog on the first list of 10 drugs.

Nonetheless, it’s somewhat surprising that CMS included drugs that will have generic or biosimilar competition before 2026. The text in the IRA states that if a drug faces generic or biosimilar competitors or such competition is imminent, it will be exempt from price negotiations. This includes Stelara, for example, which will have biosimilar competition by 2025.

Theoretically it’s possible that a drug may be removed from the list of products which will have their negotiated maximum fair prices applied in 2026. Namely, if generics or biosimilars enter the market and have “meaningful” utilization by August 2024, the originator product will be exempt from price negotiations. And no drug will replace it, effectively reducing the total number which will have their negotiated prices implemented in 2026.

Stelara, Xarelto, Januvia and Entresto have biosimilar or generic competition pending soon, though there is uncertainty regarding the exact timing of entry of competitors. Enbrel is a special case. An Enbrel-referenced biosimilar, Erelzi was approved in 2016. But its U.S. launch has been delayed by litigation until 2029.

In the cases of Xarelto and Januvia, generics won’t be available by August 2024, but they may be in 2025 and 2026, respectively. This means that it’s likely their maximum fair prices will only apply for one year.

Notably, the makers of Stelara, Entresto, Xarelto, and Enbrel have to some degree or other pursued lawsuits in connection with the potential launches of biosimilar or generic competitors.

Though not explicitly stated in the IRA, legislators have expressed concern about some of the barriers to competition which originator companies have established. These includes strategies such as patent “evergreening. This term refers to the continuing extension of patent rights on a specific product which serves to block generic and biosimilar competition from entering the market.

In light of a number of the drug selections CMS made, going forward the IRA may de facto alter the incentives pharmaceutical companies have to pursue evergreening strategies.