What's next in Biden's Medicare drug pricing negotiations?

The Biden administration on Thursday reached a milestone in Democrats' decades-long quest to use Medicare to lower prescription drug costs, issuing new prices for the first 10 drugs under negotiations between the federal program and drug companies.

But the announcement is just the beginning of a contentious, multi-stage process that will deliver more money to taxpayers and senior Americans and put more pressure on drugmakers over time. It’s a key provision of President Joe Biden’s Inflation Reduction Act, which became law nearly two years ago.

The agreed prices, which will take effect in 2026, set a precedent for future rounds of negotiations that will begin next year. These talks are likely to affect prices for dozens of the world’s most widely used medicines produced by the world’s largest pharmaceutical companies in the coming years.

“I think the expectation people should have is that this is just the beginning. These are just the top 10 drugs,” said Lee Purvis, director of prescription drug policy at the AARP Public Policy Institute, a branch of the influential lobbying group representing people over age 50, which has championed Medicare’s negotiating powers.

“Sometimes people get caught up in the fact that the medication they're taking isn't on the list, but it will be on the list at some point in the future if they're taking a medication that's causing higher costs,” Purvis added.

It’s unclear how much lower the negotiated prices are than the current net prices for the top 10 drugs, which are heavily discounted by Medicare Part D plans. These net prices aren’t publicly available, making it difficult to know how much Medicare and the patient could actually save on a particular drug when negotiated prices start in 2026. Co-payments can also vary depending on the Part D plan a patient enrolls in.

“It’s hard to know where the starting point is, because … these numbers aren’t publicly available,” said Tricia Newman, executive director of the Medicare Policy Program at the health policy research organization KFF, referring to net prices after discounts.

However, the Biden administration estimates that the new negotiated drug prices will result in about $6 billion in net savings for Medicare and $1.5 billion in out-of-pocket savings for beneficiaries in 2026 alone.

“The negotiations seemed to go relatively smoothly — the overall savings are quite impressive,” Newman said, adding that as prices for more drugs are discussed in future rounds, “the savings will increase over time.”

The price talks could put even more pressure on drugmakers in the coming years. Many of the drugs in the first round of negotiations are already nearing patent expiration, which would open the market to competition from cheaper generics and take a big bite out of revenue.

For example, bristol myers squibbEliquis, a blood thinner, is set to lose its patent exclusivity in the United States as of April 1, 2028. The blockbuster drug also faces patent expiration in some European Union markets in 2026.

But over time, drugs that are further away from losing market exclusivity may be selected for future rounds of negotiations, Leerink Partners analyst David Reisinger said in a research note Thursday.

By February 2025, the Biden administration will select up to 15 additional drugs for the next round of pricing talks, with the new prices taking effect in 2027. Manufacturers will have until the end of February to decide whether to participate in the program — a no-brainer for companies that face steep consumer taxes or loss of access to federal Medicare and Medicaid programs if they don’t.

“It’s going to start to get more painful over time,” Jeff Jonas, a portfolio manager at Gabelli Funds, said in a statement Thursday. He noted, for example, that the next round of price talks will likely include Novo NordiskOzempic is the best-selling diabetes drug in the United States.

Jonas added that there was “some speculation that the government was being nice to the pharmaceutical companies this year given that this is an election year and the first time it has done so.”

After the second round, the Centers for Medicare & Medicaid Services can negotiate prices for 15 more drugs that will take effect in 2028. The number increases to 20 drugs per year starting in 2029.

The Centers for Disease Control and Prevention will only select Medicare Part D drugs for the first two years of negotiations. It will add more specialty drugs covered by Medicare Part B, which are typically administered by physicians, to the round that takes effect in 2028.

This could pose a greater threat to the pharmaceutical industry, since the prices of drugs covered under Medicare Part B are not discounted to the same extent as those covered under Part D.

“My assumption, since the deductibles are limited, is that drug prices will go up more than Part D drugs, which have high deductibles,” Reisinger said in an interview with CNBC, referring to drugs covered by Part B.

Jonas noted that negotiations on price changes in 2028 could include some major cancer drugs, such as MerckThe popular chemotherapy drug Keytruda.

Vice President Kamala Harris, the Democratic presidential nominee, is likely to try to expand the scope of the negotiations if elected and “will likely be more aggressive about the discounts,” Jonas said.

But Newman said her ability to pass legislation to advance the policy would depend on which party controls the House and Senate. Harris herself would have had to cast a tie-breaking vote in the Democratic-controlled Senate to pass the original bill.

“There is some interest among Democrats in Congress in doing this, but clearly the law will depend on which party is in control,” Newman said.

The pharmaceutical industry says the negotiations could affect its revenues, profits and innovation in the long term.

For example, Steve Opel, CEO of the pharmaceutical industry’s largest lobbying group, PhRMA, said in a statement Thursday that the price talks could lead to fewer treatments for cancer, mental health, rare diseases and other conditions because they “fundamentally change” the incentives for drug development.

The U.S. Medicare health care program can begin negotiating prices for small-molecule drugs within nine years of their FDA approval, compared with 13 years for biologics. Small-molecule drugs are made from low-molecular-weight chemicals, while biologics are derived from living sources such as animals or humans.

The industry says this distinction would discourage companies from investing in small-molecule drugs.

— CNBC's Angelica Peeples contributed to this report.