Drugmakers and officials are fighting over many aspects of the now-annual negotiations
The battle to empower the federal government to negotiate lower prices for Medicare enrollees was years in the making. The war has just begun.
After years of opposition from the pharmaceutical industry and lawsuits seeking to halt the law that led to the new prices, resistance paled and legal efforts failed. The talks settled into a sometimes testy back and forth: hundreds of pages of paperwork, offers and rejected counteroffers, then rounds of meetings in windowless rooms with strict rules on how many people could attend.
Drug companies wanted more transparency. The government says it acted in good faith.
During the meetings, many manufacturers lowered counter offers while federal officials moved up from their initial offers, said Meena Seshamani, director of the Center for Medicare and a deputy administrator of Medicare’s parent agency, the Centers for Medicare and Medicaid Services.
“Our goal in standing up the Medicare drug price negotiation program really has been to implement in as thoughtful and transparent a way as possible,” Seshamani said. The Biden administration said the new prices for the initial 10 drugs will lead to $6 billion in savings the first year.
Round two is just around the corner.
Companies and officials are already preparing for negotiations over more drugs that could take a bigger bite out of high drug costs, and possibly their bottom lines. Next up are prices of 15 more drugs the government will identify by Feb 1.
The two sides are also fighting over how the talks should work. Among the drug industry’s demands: clarity on how CMS determines the price of a drug. Drug companies are also fighting the agency’s potential changes for next year, including possibly cutting back the number of in-person meetings to fewer than three.
Pfizer Chief Executive Albert Bourla said three of the company’s drugs could be selected for the next round of negotiations, though some will be months away from losing patent protection and becoming available as generics. Already, he said, Pfizer has reacted to the new rules by giving priority to development of drugs using technologies that enjoy longer protection from negotiations.
“We know more now than we knew before,” Bourla said. “Still, there is a lot of uncertainty.”
Mounting costs
Doctors, patients and lawmakers long called for government negotiations to rein in rising drug costs. Medicare, the federal health-insurance program for older and some disabled people, is the country’s biggest buyer of prescription drugs, but by law it didn’t have the power to negotiate, relying on private insurers to manage costs.
In 2022, President Biden signed the Inflation Reduction Act, empowering Medicare to negotiate drug prices. The law specified that the negotiated discounts be at least 25% off the regular price.
Last August, the U.S. government named the first 10 drugs up for negotiations. They were widely used or costly medicines including Johnson & Johnson’s and AbbVie’s Imbruvica leukemia treatment, Amgen’s Enbrel rheumatoid arthritis therapy and Novo Nordisk’s NovoLog insulin.
Medicare paid more than $50 billion for the drugs in 2022, before rebates, according to JPMorgan Chase analysts. About nine million Medicare beneficiaries take at least one of them.
Before negotiations began, the industry tried to scuttle them. Drug companies and business groups filed lawsuits seeking to block the government from enforcing new prices. Judges have dismissed several of the lawsuits. Some are pending.
Drugmakers began submitting information about the drugs to CMS in October. CMS asked how much the drugs cost to develop, what the studies evaluating their safety and effectiveness found and whether federal research grants supported that work. The agency also asked companies how much they spent to manufacture and market the drugs.
Answering the requests took months and required dozens of staffers specializing in everything from research to government affairs. For some, the work became full-time jobs. Drugmakers’ responses, submitted to a digital government dropbox, amounted to hundreds of pages.
In February, CMS sent its initial price offers. They mentioned factors CMS weighed, but didn’t make clear how much weight the agency assigned to each factor, people familiar with the matter said. The opacity made it difficult for drugmakers to prepare counter offers, which were supposed to reflect whether CMS had used the factors correctly to determine prices, the people said.
By March, the manufacturers of all 10 drugs submitted counteroffers, arguing the initial CMS prices were too low. CMS rejected them by the end of that month.
The stalemates triggered more meetings. Each company was entitled to up to three in-person meetings with CMS officials to negotiate a final price.
No more than six people from each company were permitted to attend the meetings between April and July at CMS’s offices in suburban Baltimore. They gathered in conference rooms, often without windows, at a table across from a similar number of CMS officials.
Company representatives answered questions and shared slides, the people familiar with the meetings said. They asked CMS officials to explain how much weight they gave various factors to determine prices. Company representatives did most of the talking.
Seshamani said the negotiations were productive conversations that built upon public meetings CMS had organized and information from the companies about their drugs.
In a sign of how contentious the process was, CMS and the manufacturers didn’t reach an agreement with drugmakers on five of the drugs until after the meetings. In those cases, the drug companies accepted the government’s final offer. The companies faced high excise taxes if they refused.
Other prices were agreed upon during in-person meetings. Four prices offered by manufacturers were agreed to by CMS while the other was offered by CMS and accepted by the drug company. CMS didn’t identify when in the process companies accepted new prices.
In the end, the negotiated prices were 38%-79% lower than regular prices, before rebates. Factoring in rebates, Medicare said savings averaged 22%.
Drugmakers had already cut the cost of most of the 10 drugs substantially through rebates to insurers, said Mark McClellan, head of a health-policy institute at Duke University and former head of CMS and the Food and Drug Administration.
Those net prices essentially served as ceilings on offers from CMS for some of the drugs, McClellan said. CMS also considered prices of competing medicines that weren’t subject to negotiation.
Future fights
Drugmakers want to know how CMS picked the medicines it used for comparisons, because including a low-price generic could cause CMS to make a lower offer than if it only focused on other brand-name drugs.
CMS hasn’t disclosed full details of the formula it used for each drug. It said it would next March after naming the next 15 drugs up for negotiations.
Among high-profile drugs that could be eligible for negotiations in future rounds is Novo Nordisk’s popular weight-loss therapy Wegovy, analysts said.
Drugmakers are pushing Congress to change the IRA so that injected biotechnology drugs and pills are on the same timeline for eligibility for negotiations. Currently, pills are exempt for four fewer years, which drugmakers have said makes them less motivated to develop them.
“I think if logic prevails, they should fix it,” said Bourla, Pfizer’s CEO.
Source: Wall Street Journal
