The Battle for Affordable Medication: Medicare's Negotiation Power Revealed

By Patricia Anderson August 31, 2023

The federal government is clashing with Big Pharma as Medicare negotiates drug prices for the first time, promising significant savings for patients after 2026.

Three enormous health care systems, the VA for veterans, Medicaid for the disadvantaged, and Medicare for seniors and individuals with disabilities, are managed by the American government. Both the VA and Medicaid, unlike Medicare, leverage their negotiating power to secure better costs for drugs from suppliers. Medicare however, has historically faced an absolute prohibition on negotiating drug prices, a regulation shaped by the influential pharmaceutical lobby.

This prohibition was part of the legislation when the Medicare Part D drug benefit was introduced by the Republican-affiliated Congress and President George W. Bush in 2003. Senator John McCain criticized the ban as "outrageous", and Democrats promised to overturn it. Their efforts were rewarded when President Biden signed the Inflation Reduction Act last year, allowing the Secretary of Health and Human Services, Xavier Becerra, to negotiate drug pricing, albeit for a small set of drugs initially.

The first list containing 10 drugs has been announced by President Biden, and these negotiations, led by the Centers for Medicare & Medicaid Services (CMS), will span years with lower prices for patients anticipated to begin in 2026. In the subsequent four years, pricing for an additional 50 drugs will be at stake in negotiations, followed by 20 drugs per year thereafter. However, Big Pharma is vehemently contesting the changes and has taken the fight to court to halt these actions.

The domestic pharmaceutical industry—featuring big names like Pfizer, Bristol Myers Squibb, Boehringer Ingelheim, Eli Lilly, Johnson & Johnson, Merck, AstraZeneca, Novartis, Amgen, AbbVie, and Novo Nordisk—is naturally opposed to price reductions that threaten to shrink their profits. But isn't it a problem when life-saving treatment becomes unaffordable, like Imbruvica for blood cancer, which currently costs $17,000 per month, or $204,000 annually?

The pharmaceutical industry contends that with Medicare as one of its most significant customers, the so-called negotiations would simply metamorphose into price dictation from the government, thereby undermining true back-and-forth negotiation. This debate has the potential to reach the Supreme Court owing to the vast resources that Big Pharma can marshal for its legal fight.

Nonetheless, the hope remains that the program will endure and ultimately bring about significantly reduced drug costs, providing much-needed financial relief for needy patients.