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Legislation allowing the US government to negotiate lower drug prices will save Americans $7.5bn in its first year, the White House has said after it announced deals with pharmaceutical groups to cap prices on 10 of the most expensive medicines.
Price caps introduced in President Joe Biden’s Inflation Reduction Act will reduce net spending for the Medicare health insurance programme by 22 per cent, or $6bn, it said on Thursday following a year of negotiation with leading pharmaceutical groups including Johnson & Johnson and Merck.
Based on the costs of the 10 medicines last year, the pricing limits would also reduce out-of-pocket costs for patients on the federal health insurance programme by $1.5bn.
The ability to cap prescription drug costs by leveraging the government’s bulk purchasing power, which was introduced as part of President Biden’s Inflation Reduction Act, marks a significant policy victory for the Biden administration, and will be trumpeted by Kamala Harris in her effort to beat Republican rival Donald Trump in November’s presidential election.
Harris, who has pledged to “take on Big Pharma” at campaign rallies, said she had been “proud to cast the tiebreaking vote” that allowed the IRA to pass the Senate two years ago.
“Today’s announcement will be life-changing for so many of our loved ones across the nation, and we are not stopping here,” she added. Harris and Biden are expected to hold a campaign event on Thursday in Maryland to highlight the success of the reforms.
The group of drugs, targeted by the first negotiations, include cancer, heart disease and diabetes medications manufactured by 11 different drugmakers, some of which share rights to certain medicines. They collectively cost Medicare $50.4bn in gross expenditure excluding rebates and discounts last year, out of a total $120bn budget to cover 3,500 prescription drugs.
Since selecting the initial 10 drugs which will be subject to price caps from 2026 onwards, the US government has had to face more than a dozen lawsuits brought by companies and industry bodies opposing the new powers, some of which are ongoing. The reforms also cap out-of-pocket costs for Medicare patients at $2,000.
The savings to Medicare surpassed the initial projections of the Congressional Budget Office, which predicted that the reforms would save the programme $3.7bn in their inaugural year. The Centers for Medicare & Medicaid Services is expected to reveal more detailed price cuts affecting individual medicines before US markets open on Thursday.
Up to 50 more drugs, possibly including the blockbuster diabetes drug Ozempic, will be targeted across three rounds of price negotiations between now and 2027. The negotiations are expected to save the government $100bn over the next decade, according to the CBO.
From 2027, 20 additional drugs each year will be eligible for price negotiations. A drug’s eligibility is based on average price and competition.
The pharmaceutical industry has vociferously opposed the price controls, arguing that they will reduce funding for research and development.
Stephen Ubl, chief executive of industry lobbyist PhRMA, said the scheme was an attempt “to drive political headlines, but patients will be disappointed when they find out what it means for them”, adding that there are no assurances patients’ out-of-pocket costs will reduce as no controls have been placed on insurers.
Chris Boerner, chief executive of Bristol Myers Squibb, said last month on an earnings call that the reforms were “not good public policy”, adding that he was “very concerned about the long-term implications of [the] IRA on innovation”.
Boerner added that having seen the final price “we’re increasingly confident in our ability to navigate the impact of IRA on Eliquis”, a drug produced by BMS and Pfizer on which Medicare spent $16.4bn last year. Other drugmakers affected by the price controls, including AstraZeneca and Novartis, also struck a sanguine note on earnings calls about the reforms’ impact on revenues.
Type-2 diabetes medication, jointly manufactured by Eli Lilly and Boehringer Ingelheim; Johnson & Johnson’s anti-clotting drug Xarelto and Amgen’s autoimmune disease medication Enbrel are among those affected by the first round of price caps. As part of the Inflation Reduction Act, insulin costs were also capped at $35 a month.
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