In the face of heavy opposition last year, the Inflation Reduction Act passed and among other things, paved the way for the federal government to negotiate drug prices directly with manufacturers. This congressional action makes it possible for Medicare to negotiate prices for high-cost drug with pharmaceutical companies for the first time— something other countries such as Germany, Japan, France, and the U.K. have already been able to do, with their drug prices resting at a fractional cost of those in the United States.

BHC signed on to support this provision, as did many other business health coalitions. While generally preferring private sector initiatives, there was no evidence that our nation’s very large PBM’s, whether operating in the Part D or the commercial space, had the negotiating clout needed to moderate drug price escalations. The spending gap between the U.S. and other industrial nations has been widening, rather than contracting, and medication expenses are creating a financial hardship for American employers and workers alike.

The noninterference clause created in the passage of Medicare Part D in 2003 has prohibited the U.S. government from being allowed to negotiate drug prices— until now. CMS aims to save $25 billion on drug costs per year by 2031— a savings that would significantly ease the drug cost burden for Americans.

Click here to see the drug list released last Tuesday. Of these ten drugs, six appeared in the top 25 ranked drugs across BHC’s 2021 Book of Business, with spend totaling just over $41 million for our Pharmacy Management Initiative. The stipulation for negotiated prices to be reduced by at least 25% would be comparable to a drug’s cost after rebates, therefore the hope is for a negotiated price with larger savings.

Drug manufacturers strongly oppose Medicare’s ability to negotiate drug prices and have taken legal action to stop or delay its implementation. Merck & Co, Johnson & Johnson, Bristol Myers Squibb, and Boehringer Ingelheim, as well as the U.S. Chamber of Commerce and the industry group PhRMA, have taken to suing Congress over what they argue is a violation of their constitutional rights. One lawsuit claims that drug price negotiation violates the fifth amendment, using the “takings clause” to indicate the unjust taking of private property without adequate compensation. Another lawsuit argues that forcing a company into price negotiation violates the first amendment right to free speech. Medicare seems confident that its ability to negotiate drug prices does not violate any constitutional rights, but the final determination will occur in the courts.

Without delays due to various lawsuits, drug price negotiation will take place over the next two years with newly negotiated prices for the first ten listed drugs set to take effect in 2026. In 2025, Medicare will introduce a list of 15 drugs for round two negotiation and in 2026 another list of 15 drugs for round three negotiation. The legislation specifies that the list in 2026 may go beyond retail medications and include those medications administered in a medical setting. A drug price negotiation timeline can be found here.

While the long-term effects of this legislation are yet to be known, employers will want to follow Medicare’s progress and engage with their health plan and PBM partners to ensure appropriate and prompt fiduciary action is taken to protect the interest of your company and employees. 

Warm regards,

Louise Y. Probst,
BHC Executive Director