The Medicare drug price negotiations

In 2022, the U.S. Congress passed the Inflation Reduction Act, which gave Medicare the authority to negotiate certain prescription drug prices with manufacturers for the first time. The intent of this law is to reduce the cost of some of the most expensive drugs and increase access to patients through Medicare Part B and D.

In August 2023, the Centers for Medicare and Medicaid Services announced the first 10 drugs that it selected for negotiation. All of these drugs are covered under Medicare Part D. CMS selected these drugs based on total expenditures under Part D and other criteria as required by the IRA. The negotiations occurred through 2024, and the new rates will become effective beginning in 2026.

In early 2024, CMS sent an initial offer for each selected drug to the participating drug company. The drug company had 30 days to respond by accepting or providing a counteroffer. If an agreement was not reached in the initial offer and counteroffer, CMS invited the drug company to up to three negotiation meetings in the spring and summer of 2024.

The negotiation period ended on Aug. 1, 2024. By that date, the drug companies were expected either to accept a negotiated rate, reject the negotiated rate and pay an excise tax on sales of the selected drug to Medicare during defined periods, or remove its drug from the Medicare and Medicaid programs.

CMS published the agreed to rates in August 2024, and those rates will be effective for the Medicare program as of Jan. 1, 2026.

CMS will continue this negotiation program for additional cycles, adding 15 more drugs in both 2027 and 2028 (which will also include Part B drugs), and 20 drugs in each year after that.

A number of lawsuits were filed in 2023 and 2024 against the U.S. Department of Health and Human Services and CMS, mainly by pharmaceutical companies impacted by the negotiation program, arguing that the program is unconstitutional. The companies believe that the program will financially harm them and stifle innovation required to develop life-saving drugs.

So far, none of the lawsuits brought challenging the IRA have been successful, though several are still under consideration.

Barry F. Rosen is the head of Gordon Feinblatt’s health care practice group and can be reached at 410-576-4224 and [email protected]. Darci M. Smith is a member of Gordon Feinblatt’s health care practice group and can be reached at 410-576-4153 or [email protected].