The US Releases The First Drugs Eligible For Medicare Negotiation
The US government is tackling the costliest problem in the US: medical expenses. It started with the passing of last year’s Inflation Reduction Act, which gave Medicare — the US health insurance program for 57M seniors — the power to negotiate prices over certain drugs.
Yesterday, Biden released the first ten drugs eligible for negotiations — including ones by major manufacturers like Bristol Myers, Johnson & Johnson, Eli Lilly and AstraZeneca.
- These drugs made up $50.5B of Medicare’s Part D prescription costs, ~20% of the total for the year ending May 2023.
- The statement says the number of drugs up for negotiation will rise to 60 over the next four years — with 20 new drugs being added each year after.
Negotiations begin in 2024, and price changes will take effect in 2026. And if drugmakers don’t want to negotiate, they’ll face taxes as much as 95% of the medication’s US sales.
Drugmakers in fight mode
Investors are concerned about the impact on earnings — dragging down pharma stocks in recent years — with the SPDR S&P Pharmaceuticals ETF (NYSE:XPH) up only 8% this year while the S&P 500 is up 17%.
- Companies are already raising prices on new drugs to potentially make up for lost sales — a hit that could run up to 5% of the industry’s total revenue.
- Several drugmakers have launched lawsuits against the IRA’s Medicare drug negotiation program — arguing that the changes “will deal a fatal blow” to innovation per one lawsuit.
The Congressional Budget Office expects the number of drugs coming to market to fall ~1% — but on average, the government expects prices to be reduced by half, with Medicare to save $98.5B through 2031.