Drugmakers attacked the Inflation Reduction Act on Tuesday as Medicare unveiled the first drugs to face price caps under the law.
The drugs include the blood thinner Eliquis, diabetes treatment Jardiance and eight other medications. The negotiation process, authorized last year, caps decades of debate over whether the federal government should be allowed to haggle with pharmaceutical companies.
Any lower prices won't take effect for three years, and the path forward could be further complicated by litigation from drugmakers and heavy criticism from Republicans.
Most of the drugs are expected to face competition from cheaper generic versions within two years or less of price caps taking effect in 2026, meaning the law will only slightly quicken the decline of the manufacturer's earnings.
"The government is effectively negotiating, or controlling prices of drugs that were set to step down anyway" because of looming competition, said David Risinger, a senior managing director at Leerink Partners, a health care-focused investment bank.
Louise Chen, a managing director at Cantor Fitzgerald, put it more bluntly. "Today is a non-event," she said, adding that the day played out largely as expected.
President Joe Biden hailed his administration's announcement. The effort is a centerpiece of his reelection pitch as he tries to show he deserves a second term because of the work being done to lower costs while the country is struggling with inflation.
"For all of you out there, I get it, and millions of Americans get it," Biden said at the White House. "I promise you: I'm going to have your back and I'll never stop fighting for you on this issue."
The drugs on the list accounted for $3.4 billion in out-of-pocket costs for Medicare patients last year. The Medicare program paid more than $50 billion for the drugs between June 1, 2022, and May 31, according to the Centers for Medicare and Medicaid Services.
Biden noted that he got "no help from the other team" -- meaning Republicans -- when it came to lowering prescription costs.
The list of drugs represents a watershed moment, but the true effects of the law will unfold over years as Medicare selects progressively more drugs that will be subject to maximum prices. Centers for Medicare and Medicaid Services aims to add 15 more drugs to its negotiation list for 2027 and another 15 for 2028. It then plans to add up to 20 more each year after that.
The pharmaceutical industry says its broader concern is that the Inflation Reduction Act, which seeks to bring down out-of-pocket costs for senior citizens on Medicare, will stifle innovation. Six pharmaceutical companies have filed legal challenges to the law, as has the U.S. Chamber of Commerce and the pharmaceutical industry's largest trade group, in cases that could take years to resolve.
"Today's announcement is the result of a rushed process focused on short-term political gain rather than what is best for patients," the Pharmaceutical Research and Manufacturers of America said in a statement.
If the Inflation Reduction Act stands, industry analysts expect it to have far-reaching effects. Prices negotiated and made public by Medicare could affect how commercial insurers negotiate with drugmakers. Drugmakers could increasingly focus on developing larger-molecule drugs -- like vaccines and gene therapies -- that have a longer runway than prescription pills before prices can be capped. Or they could opt not to pursue developing certain drugs if they determine they wouldn't make enough money to justify their costs.
Most of the drugs that made the initial list for negotiation were widely expected by industry analysts, including Eliquis, Medicare's largest expenditure for an individual drug in 2021. They also include Xarelto, another blood thinner; Jardiance, Januvia, Farxiga and Novolog, which treat diabetes, among other conditions; Enbrel and Johnson & Johnson's drug Stelara for arthritis and psoriasis; Entresto for heart failure; and Imbruvica for cancers of the blood.
There were some surprises. Umer Raffat, an analyst at Evercore ISI, expressed puzzlement in a research note over the inclusion of Stelara, which is set to have competition from a similar product in 2025, and Merck's Januvia, which is set to face generic alternatives from 25 companies by May 2026.
On the other hand, Amgen's Enbrel isn't expected to have generic competition until 2029, while Abbvie's Imbruvica is projected to have exclusivity through 2032 -- making them the most vulnerable to price controls. Matt Phipps, an analyst at William Blair, said an Inflation Reduction Act discount "will meaningfully reduce revenues" for Enbrel from Medicare and add to Imbruvica's challenges as it faces more competition.
Amgen and Abbvie didn't respond to requests for comment.
The policy's "price control provisions will constrain medical innovation, limit patient access and choice, and negatively impact overall quality of care," Johnson & Johnson said in a statement. Merck joined Johnson & Johnson in challenging the policy in court.
The companies that make the initial 10 drugs will have a month to sign an agreement to negotiate. Medicare will make its initial price offer to the drugmakers by Feb. 1 and finalize the maximum prices by Sept. 1, 2024. The new rates won't kick in until January 2026.
Drug companies that refuse to be a part of the new negotiation process will be heavily taxed.
The Inflation Reduction Act allows Medicare to begin negotiating maximum prices on drugs that lack competition from cheaper alternatives, starting seven to 11 years after the drugs win approval from the Food and Drug Administration. That is generally a shorter time frame than company patents that protect them from cheaper competition, a period they depend on to recoup their development costs and book a profit.
It's common for companies to explore additional uses for a drug after approval, but that requires costly research. Novartis, the maker of Entresto, said it invested in clinical trials after winning approval in 2015 and ultimately expanded the conditions the drug is approved to treat in 2021.
Under the Inflation Reduction Act, the company said Tuesday, "we may not have been able to invest in researching and developing Entresto in these additional indications."
For drugs on the list released Tuesday, the government aims to negotiate the lowest maximum fair price. That could help some patients who have coverage but still face big bills like coinsurance payments when they get a prescription.
About 9% of Medicare beneficiaries age 65 and older said in 2021 that they did not fill a prescription or skipped a drug dose because of cost, according to research by the Commonwealth Fund, which studies health care issues.
Currently, pharmacy benefit managers that run Medicare prescription plans negotiate rebates off a drug's price. Those rebates sometimes help reduce premiums customers pay for coverage, but they may not directly change what a patient spends at the pharmacy counter.
The new drug price negotiations aim "to basically make drugs more affordable while also still allowing for profits to be made," said Gretchen Jacobson, who researches Medicare issues at Commonwealth.
The federal government will benefit most from any lowered drug prices, noted Larry Levitt, an executive vice president for health policy at KFF, another non-profit that studies health care.
The pharmaceutical industry has been gearing up for months to fight these rules.
"Many of the medicines selected for price setting already have significant rebates and discounts due to the robust private market negotiation that occurs in the Part D program today," PhRMA Chief Executive Officer Stephen J. Ubl said in a statement.
Information for this article was contributed by Daniel Gilbert of The Washington Post, Chris Megerian, Tom Murphy and Amanda Seitz of The Associated Press and John Tozzi of Bloomberg News.