If you were confused that in the U.S. the government was not allowed to negotiate drug costs with pharmaceutical companies but corporations could then you are in good company. Facing enormous opposition, the Inflation Reduction Act (IRA) included a provision, “Medicare Drug Price Negotiation Program” to allow Medicare to negotiate a limited list of 10 drugs to reduce the financial burden on seniors and lower government spending by the billions. Anyone outside of Medicare does not directly benefit from the change, but analysts theorize that Medicare’s discounts could dampen prices indirectly.

What drugs are on the list?

The first 10 drugs selected for negotiation include medications that are widely used by seniors, who largely make up the Medicare coverage population and include such as blood thinners and diabetes treatments. These drugs are among the most expensive and widely used medications covered under Medicare.

1. Eliquis (apixaban) – A blood thinner used to prevent blood clots and reduce the risk of stroke.
2. Januvia (sitagliptin) – Used to treat type 2 diabetes by regulating blood sugar levels.
3. Farxiga (dapagliflozin) – Used for managing type 2 diabetes, also used to treat heart failure and chronic kidney disease.
4. Entresto (sacubitril/valsartan) – A combination drug used to treat heart failure.
5. Imbruvica (ibrutinib) – A medication for treating various types of cancer, including leukemia and lymphoma.
6. Stelara (ustekinumab) – A drug used to treat Crohn’s disease and ulcerative colitis, as well as psoriasis and psoriatic arthritis.
7. Enbrel (etanercept) – Used to treat autoimmune conditions like rheumatoid arthritis and psoriasis.
8. Xarelto (rivaroxaban) – A blood thinner similar to Eliquis, used to treat and prevent blood clots.
9. Fiasp/NovoLog (insulin aspart) – Insulin products used to manage blood sugar levels in people with diabetes.
10. Symbicort (budesonide/formoterol) – A medication used to manage asthma and chronic obstructive pulmonary disease (COPD).

The total savings of the price negotiation for these top ten drugs won’t be entirely clear until 2026, but people are very encouraged following the end of the first negotiating period. The government estimated that they will cut costs between 38% to 79% compared to 2023 prices adding up to $6 billion in savings. Medicare beneficiaries could save out-of-pocket costs up to $1.5 billion the first year.

Direct Impacts v Indirect Market Influences

The direct impact of the Inflation Reduction Act was specifically designed to lower prices for Medicare beneficiaries, namely seniors and individuals with disabilities. Some analysts say that the negotiations could reduce drug costs for individuals with private insurance. But, how?

Since Medicare is a large buyer of medication, it has an outsized influence on the pharmaceutical market. Due to market forces, entities with large purchasing power can throw their weight around, but government has been hemmed in by regulations. Now, giving itself permission to negotiate lower prices for its insurance members could exert downward pressure on drug prices. The price influence could show up in a few ways:

1. Benchmarking: If Medicare’s negotiated prices are lower than what private insurers are able to get, then the Medicare price could serve as a general market benchmark. The Medicare price will be public so it is unlikely other entities will be satisfied with a higher price for their members / employees.
2. Increased Competition: If Medicare’s negotiations lead to general lower prices, pharmaceutical companies may adjust their pricing strategies to remain competitive in other segments of the market. This could potentially lead to lower prices for some drugs outside of Medicare.
3. Pressure on Manufacturers: The threat of losing market share in the lucrative Medicare segment may put pressure on drug manufacturers to reduce prices for everyone. However, the opposite could be possible too; manufacturers may try to recover their profit losses from Medicare by increasing prices for the non-Medicare market.

Expanding Negotiations

One limitation of the program’s success so far is its scope. Initially, only 10 drugs were selected for negotiation, with plans to expand to 15 more drugs in 2027 and beyond. While this is a significant start, the program currently affects only a small segment of Americans. The Biden administration argues that to truly revolutionize drug pricing in the U.S., Medicare would need to expand its negotiating power to include more drugs and reach more patients.

Pharmaceutical companies have a history of pushing back against aggressive price reductions using the courts to delay or limit a savings program’s impact. Certainly, if the administration pushes to expand the negotiated list of drugs will face litigation from pharmaceutical companies concerned about the impact on their revenue.Regardless, the number of drugs eligible for negotiation is currently limited, and the expansion of the program will be gradual, slowing any potential broader market effects​.

HealthTech to Supplement Medicare Drug Negotiating Program

As health plans and self-funded employers outside of Medicare seek to manage drug costs, companies like RazorMetrics play a crucial role. RazorMetrics offers a platform that helps organizations optimize their pharmacy benefits by leveraging AI to pinpoint and execute on cost-saving opportunities. By analyzing prescription data, RazorMetrics finds affordable alternatives—formulary optimization, coupons, discount pharmacy, polypharmacy–to ensure that health plans and self-funded employers are making the most of available savings.

In the context of Medicare’s negotiation efforts, RazorMetrics helps health plans and self-funded employers by aligning their own negotiating efforts with actual prescriptions. Often, physician prescribe the medications they know, not the ones on their patient’s formulary. We correct those errors.  

While Medicare’s negotiated price program shows early signs of success in reducing drug costs for seniors, its impact on the general market is unclear. With tools like RazorMetrics, health plans and employers can jump start their drug savings by embracing tech-savvy cost-saving strategies.