What’s next for Medicare drug pricing?

Caleb Alexander, an expert on prescription drugs, discusses what he’s monitoring following recent Medicare drug pricing negotiations

The Biden administration recently wrapped up the first-ever Medicare drug pricing negotiations, a process that resulted in lower prices on the 10 costliest prescription drugs under Medicare.

The medications include treatments for diabetes, heart failure, and psoriasis, as well as blood thinners. Biden administration officials estimate the new prices will save Medicare enrollees $1.5 billion in out-of-pocket costs in the first year and Medicare $6 billion. The new prices will take effect beginning Jan. 1, 2026.

G. Caleb Alexander, a practicing internist and epidemiologist focused on maximizing prescription medicines’ use, safety, and effectiveness, shared his thoughts on the change and what’s next.

How did these new prices come to be?

Millions of Americans are burdened by their prescription drug costs. Getting legislation that allowed Medicare to negotiate with drug companies has been a vexing area for policymakers, with little progress made over many years. It’s been something that has been long sought after by some political constituencies and opposed by others.

For the first time, the Inflation Reduction Act included provisions that allowed Medicare to negotiate drug prices. This is important because it’s been sought after for so long, and for the first time in 2026, these prices will take effect.

As for the actual price setting, the Centers for Medicare and Medicaid Services took a variety of factors into consideration. They include the production of the medication, the research and development costs of the product, the federal financial support manufacturers may have received, the number and type of patent applications, and exclusivities. Those are the company’s intellectual property around the product, such as patents and the therapeutic value of the product.

What will you be looking for as the new prices are rolled out?

One very important set of questions have to do with how this legislation will actually affect the lives of individuals who are burdened by their out-of-pocket costs. Many people who buy these drugs, even after these reductions, are still going to hit their out-of-pocket caps. And a lot of Americans, especially the elderly and those living on fixed incomes, can’t afford to spend $2,000/year on prescriptions drugs.

There is a lot of hype about how innovation is going to suffer. It will be important to evaluate that over time and whether there’s any evidence that reductions in revenues impact pharmaceutical innovation. I think some of that has been a bit overblown.

I’ll also be watching for any clinical changes. More than 7 million Medicare enrollees used at least one of these drugs. We know that patients are sensitive to costs, and that as costs go up, use goes down. I think these reductions in out-of-pocket costs will improve the ability of patients to afford these medicines and have the health benefits of these therapies.

What’s next for the drug price negotiation program?

Coming around the corner very quickly is going to be the process of selecting the next 15 drugs to be included. That begins in February of next year and wraps up in the fall.

It’s also possible, if there is a Trump administration, that the Inflation Reduction Act could be modified and the program could be repealed.