Medicare issues guidance on negotiating Part D drug prices

Medicare is getting closer to negotiating lower drug prices as part of the federal plan to reduce costs for beneficiaries.

The U.S. Department of Health and Human Services (HHS), through the Centers for Medicare & Medicaid Services (CMS), this week issued its initial guidance for the Medicare Drug Price Negotiation Program for Price Applicability Year 2026.

The goal: “For the first time, Medicare will be able to negotiate prices directly with drug companies, ensuring lower prices on some of the costliest drugs,” according to CMS.

“For far too long, millions of Americans have had to choose between their prescription drugs and other monthly expenses,” HHS Secretary Xavier Becerra said in a news release.

“President Biden is leading the fight to lower the cost of prescription drugs – and with the Inflation Reduction Act, we’re making historic progress,” Becerra said, referring to the sweeping economic plan approved by the president and Congress last year. “Through the Medicare Drug Price Negotiation Program, we will make sure seniors get a fair price on Medicare’s costliest prescription drugs, promote competition in the market, and ensure Medicare is strong for beneficiaries today and into the future.”

What comes next

The first round of the program will involve 10 Medicare Part D high-expenditure, single-source drugs, meaning drugs that do not have generic or biosimilar competition. The negotiated price list could add up to 15 Part D drugs for 2027 and 2028, and up to 20 more for price talks for 2029 and subsequent years.

CMS opened a 30-day public comment period on the process, calling it “one tool, among many, CMS will use to ensure interested parties’ voices are heard on implementation of the new drug law.”

“Drug price negotiation is a critical piece of how this historic law improves the Medicare program,” CMS Administrator Chiquita Brooks-LaSure said in a news release. “By considering factors such as clinical benefit and unmet medical need, drug price negotiation intends to increase access to innovative treatments for people with Medicare.”

There will be additional steps to open price negotiations later this year – including which drugs will be on the table. On Sept. 1, CMS will publish its list of 10 Medicare Part D drugs selected for talks. The qualifying drugs must have been on the market at least seven years for small-molecule drugs made through chemical synthesis, or 11 years for biologics produced from living organisms, according to an analysis from the Congressional Budget Office (CBO) this year.

Maximum fair prices for those will be published a year later, with the new prices going into effect on Jan. 1, 2026.

‘We finally, finally won’

President Joe Biden and members of his administration repeatedly have talked about their efforts relating to prescription drug prices and other aspects of health care. The president spoke about the plans again March 16 in Las Vegas, Nevada.

“You know, America spends more on prescription drugs than any advanced nation on earth — more than any advanced nation on earth,” the president said, according to the official transcript. “You name the drug you have to take, and I can take you to France and get it to you a hell of a lot cheaper — to Canada, England, throughout Europe. It’s not fair.

“But after decades of trying to take on Big Pharma, we finally, finally won,” Biden said. “Now, instead of paying whatever the drug company wants to charge you, Medicare – Medicare will be able to negotiate prices.”

Saving how much?

Last year, a study in Annals of Internal Medicine made headlines when researchers argued Medicare could have saved $3.6 billion if it purchased 77 generic prescription drugs at prices charged by billionaire entrepreneur Mark Cuban’s Cost Plus Drug Company.

More recently, the CBO estimated price negotiation will lead to a $14 billion reduction in Medicare Part D spending by 2031.

“Negotiation is a powerful tool that will drive drug companies to innovate to stay competitive, fostering the development of new therapies and delivery methods for the treatments people need,” CMS Deputy Administrator and Medicare Center Director Meena Seshamani, MD, PhD, said in the news release. “This initial guidance is the next step in the extensive engagement CMS has had to date with interested parties, and we look forward to continuing to receive comment on key policy areas and engage with the public as we implement the Negotiation Program.”