Co-editor-in-chief, Howard S. Hochster, MD, reviews the ongoing drug price negotiations and the effect it will have in the health care space.
With the Inflation Reduction Act of 2022 signed into law, President Joseph R. Biden and the previous Congress established a new process for limiting federal expenditures on drugs, using the leverage of the largest consumer of health care services in the United States (US)—Medicare. Currently, from Medicare’s 2022 budget of $747 billion, Part D drug expenditure accounts for $216 billion (28%).1 Even a 5% saving on these drugs would amount to $10 billion yearly.
Before the Inflation Reduction Act, Medicare was not permitted to negotiate drug pricing with drug manufacturers. Any FDA-approved drug has been reimbursed at the price set by the manufacturer without negotiation. The Inflation Reduction Act seeks to level the playing field for American taxpayers, as most high-income countries have some level of price negotiation before their health care plans agree to reimburse for a new drug.2
In England, drugs are approved by the health regulatory authorities but are not reimbursed until a second effectiveness review is conducted by the National Institute for Health and Care Excellence and a drug price is set.3 If the manufacturer does not come to an agreement, the National Health Service will not pay for the drug, though it may be available to some patients via private payment or insurance. Other countries consider cost-effectiveness when deciding whether new drugs should be added to the essential basket of health care. In the US, the Veterans Health Administration negotiates drug prices when they purchase the large quantities necessary.3 The result of this worldwide situation is that US patients bear a disproportionate burden regarding the costs of drug development and manufacture. The new law will, to a small extent, redress this inequality for the US consumer compared with the rest of the world.
The new law is set to take effect in September 2023 with Medicare proposing 10 drugs for negotiation, with cost reductions to start in 2026.4 In 2024 and 2025, 15 drugs will be added, and in 2026 and after, 20 drugs per year. The drugs on the list for the first negotiation were announced on August 29, 2023. These include Eliquis (apixaban) with $16.5 billion in Medicare expenditures; Jardiance (empagliflozin) at $7 billion; Xarelto (rivaroxaban), at $6 billion, Januvia (sitagliptin), Farxiga (dapagliflozin), Entresto (sacubitril/ valsartan), Enbrel (etanercept), Stelara (ustekinumab), Novolog (insulin aspart), and the cancer drug Imbruvica (ibrutinib)at $2.7 billion.5
This seems to be a modest step forward. We already give drug manufacturers at least 20 years of exclusivity through patent protection, which constitutes the basic incentive to develop new drugs. When drugs are widely used “blockbusters,” patent protection against generics and 9 years of full reimbursement issues seem like a modest request of the pharmaceutical industry.
Nonetheless, 6 pharmaceutical giants (AstraZeneca, Bristol Myers Squibb, Merck, Pfizer, Johnson & Johnson, and Astellas) have filed suit against the US government to stop this process on the basis of infringement of their freedom of commerce and unconstitutional price controls.6 As physicians, however, it is hard to sympathize when we have been under price controls since Medicare set its rates in the 1980s, and managed care has followed suit. Little has been done to fix the situation, resulting in primary care physicians commonly losing money on Medicare patients due to failure to update reimbursement levels.
In addition, we should also recognize the role of the US government and taxpayers in drug development. Essentially, every new targeted agent and every new biologic has benefited from the National Institutes of Health (NIH)-supported research at US universities and even biotechnology companies. NIH grants have led to major advances such as restriction enzymes, DNA sequencing, monoclonal antibody production technology, gene editing, and CRISPR plus its more recent innovations.
These advances have led to amazing new drugs in cancer, hypertension, rheumatologic diseases, and now obesity, and a new biotechnology industry. For example, US taxpayers invested approximately $337 million (from NIH, Biomedical Advanced Research and Development Authority) in the development of RNA vaccine technology, prior to the COVID-19 epidemic, with the interest mainly in the potential for cancer vaccines and for Zika virus. Fortunately, the technology was sufficiently developed to pivot for manufacturing COVID-19 vaccines when needed. With the advent of COVID-19, the US government (we, the taxpayers) invested another $29 billion. Yet Moderna, BioNTech, and Pfizer all made massive profits from the COVID-19 vaccines ($90 billion in pretax profits in 2021 and 2022).7
We certainly must recognize the extensive costs to the pharmaceutical manufacturers in bringing all these discoveries from the laboratory to clinical trials and FDA approval. Nonetheless, it is unfair that the US taxpayer shoulders most of the costs of basic research leading to drugs, then pays more than any other health care consumer in the world. Drug price negotiations are starting now, and it is only fair to the US consumer that some relief in drug costs is on the horizon. We recognize the efforts of the current administration to bring this process forward for the