President Joe Biden's program under the Inflation Reduction Act of 2022, allowing Medicare to negotiate drug prices directly with manufacturers, will face major tests in 2024. 

According to CNBC, 2024 could set a precedent for a system that may affect the prices seniors pay for numerous medications by the end of the decade. 

The negotiations, the first in Medicare's nearly 60-year history, will focus on the first round of 10 prescription drugs to make those pricey treatments more affordable for older Americans.

(Photo : Arek Socha from Pixabay)

Medicare Drug Price Negotiations

The pharmaceutical industry, which includes companies like Merck, Johnson & Johnson, and Bristol Myers Squibb, views this negotiation process as a substantial threat to its revenue growth, profits, and drug innovation. 

The final prices agreed upon will not only determine the financial impact on drug manufacturers but will also offer insight into the potential savings for patients.

The medications subject to negotiations are part of the top 50 with the highest spending for Medicare Part D, which covers prescription drugs that seniors replenish at pharmacies. Around nine million seniors reportedly spent $3.4 billion on the 10 drugs in 2022.

The negotiations aim to address this financial burden, with the Biden administration highlighting the challenges faced by nearly 10% of Medicare enrollees aged 65 and above, along with 20% of those under 65, in affording medications.

The negotiation timeline officially commenced in August when the Centers for Medicare & Medicaid Services (CMS) identified the initial 10 drugs subject to price talks, which included diabetes drugs from Merck and AstraZeneca and blood thinners from Bristol Myers Squibb and Johnson & Johnson, according to CNBC. 

All companies making these 10 drugs signed agreements to participate in the price talks after two months, even after most of them sued the administration to stop the negotiations.

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Negotiation Period Set by Biden Administration

The actual negotiation period is set to start on February 1, with CMS providing initial "maximum fair price" offers for each drug after considering factors such as US sales volume, research and development costs, federal support for drug development, and patent-related details. 

Drugmakers have a month to accept the offers or counter them. If CMS declines a drug counteroffer, up to three meetings can be arranged for further price discussions. Negotiations end when CMS and drugmakers reach an agreement. 

Final price offers from CMS to manufacturers must be made by July 15, and companies have two weeks to respond. Failure to reach a price agreement with Medicare by August 1 could result in a tax of up to 95% of a drug's US sales or withdrawal from Medicare and Medicaid markets.

CMS will publish the agreed-upon prices on September 1, which will go into effect in 2026. 

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