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For the first time ever, the US government has negotiated drug prices directly with manufacturers, thanks to President Joe Biden’s Inflation Reduction Act.
The White House revealed the new drug prices on Thursday, the start of a promise to lower drug prices—and also the continuation of a long-lasting fight with the pharmaceutical industry.
The discounts, which will take effect in January 2026, target 10 drugs covered by Medicare Part D, which treats conditions such as diabetes, autoimmune diseases, and cancers.
Projected savings. The markdowns range from 38% on Pharmacyclics LLC’s blood cancer drug Imbruvica to 79% on Merck Sharp Dohme’s diabetes drug Januvia.
Medicare spent more than $56 billion on these drugs last year—about 20% of its annual total. People with Medicare Part D prescription drug coverage spent $3.9 billion out of pocket on these drugs last year.
When these deals take effect, taxpayers are expected to save $6 billion on prescription drug costs and enrollees can expect to save $1.5 billion in out-of-pocket costs, according to a White House fact sheet.
In 2027, the negotiation process will expand to another 15 drugs, with more to come in later years. The discounts will include drugs under Medicare Part B in 2028, with even more added annually after that.
Industry pushback. Impacted drug companies including Bristol Myers Squibb, Johnson & Johnson’s Janssen division, and Novo Nordisk previously filed lawsuits in federal court in an attempt to stop this negotiation, which were all ultimately rejected.
While individual plans have long negotiated with drug companies, according to NPR, the pharmaceutical industry has argued that allowing Medicare to negotiate for the program as a whole is bad for business. Though the government says these negotiations are voluntary, refusing means hefty penalties and withdrawal from the Medicare program, making it an offer drug companies allege they can’t refuse. J&J and Bristol Myers Squibb went so far as to say the government was trying to illegally take their property, CNBC reported.
Nonetheless, NPR reported that “several drug companies” have assured investors they can still “manage the losses from lower Medicare prices."
Yet in a Wednesday statement, Pharmaceutical Research and Manufacturers of America (PhRMA) President and CEO Stephen J. Ubl condemned the government price setting, arguing it “fundamentally alters the incentives for medicine development.”
“Companies are already changing their research programs as a result of the law, and experts predict this will result in fewer treatments for cancer, mental health, rare diseases, and other conditions. Medicine development is a long and complex process, and the negative implications of these changes will not be fully realized for decades to come,” he said.
The Congressional Budget Office, when considering how the law will impact drug companies’ decisions about the profitability of developing new drugs, predicted that the Inflation Reduction Act could prevent 13 new drugs from coming to market over the next 30 years, out of 1,300.