2 things we were expecting

1. HHS is focused on total spend rather than drug price

Many different types of drugs fit under the high-cost drug umbrella. As HHS considered medications for negotiations, they looked at total Medicare spend rather than highest list price. 

From June 2022 to May 2023, the average Part D covered prescription drug costs per enrollee for seven of the 10 drugs on this list were less than five thousand dollars per year. The three specialty medications on the list — Imbruvica, Stelara, and Enbrel — had an average Part D cost per enrollee of $133,178, $119,951, and $58,148 per year, respectively. 

Initially, we were surprised that HHS included so few specialty medications in this round of negotiations, considering specialty drugs accounted for 20% of total Part D spending in 2019. 

However, focusing on non-specialty medications will allow HHS to test whether negotiating with one drug in a class will also drive down prices across its competitors. 

For example, if negotiations on Eliquis successfully lower the price of the drug, plan sponsors and pharmacy benefit managers may be incentivized to prefer Eliquis on their formularies. To prevent that, other blood thinner manufacturers may also lower their prices — either through list price reductions or steeper rebates — to maintain their position on drug formularies. 

The potential ripple effects could impact millions of patients. With this approach, it's likely that other blockbuster medications will be added to HHS' list in future drug negotiations.  

2. Negotiations may not significantly impact patient out-of-pocket savings 

Starting in 2025 — one year before negotiations go into effect — patients enrolled in Medicare Part D will have their out-of-pocket (OOP) drug spend capped at $2,000. In 2023, a $35 per month out of pocket cap on insulin rolled out. These OOP caps will likely have a bigger effect on patient's spending overall than the negotiated prices, even though those prices may mean that patients face lower OOP monthly costs.  

2 things that surprised us 

3. Rare disease is on the table

Under the IRA, drugs with a single orphan indication are exempt from negotiation. This is intended to protect manufacturers whose drugs fulfill an unmet need for patients with rare diseases. Before this summer, it was unclear whether a drug that is approved for multiple orphan indications would also be exempt.

The decision to include Imbruvica — a drug that has multiple orphan indications — in the first round of negotiations indicates that HHS is using a narrow interpretation of the law, sounding the alarm for drug developers focused on the oncology and rare disease spaces. 

Many companies are fighting this provision in ongoing litigation. Last week, AstraZeneca cited this rule in its announcement of a lawsuit. Overall, HHS' interpretation significantly broadens the pool of eligible drugs and will require developers to reassess their pipelines in response.

4. Biosimilar manufacturers aren't necessarily requesting delays

We were surprised to see Stelara on this list, given that biosimilars are expected to launch in early 2025. 

Under the IRA, a drug can be exempt from Medicare negotiation if there is "high likelihood" that a biosimilar will come to market within two years. However, the manufacturer of the biosimilar product must make a request to delay the negotiation.

Stelara's biosimilars are projected to launch in January and February of 2025, which falls within the acceptable two-year period. However, Stelara was still included in Medicare drug price negotiations. We assume that the manufacturers of the biosimilars either did not submit a request to delay negotiations or perhaps they did not submit one in time. 

Stelara's inclusion on the list leaves us with a simple question: Why? There are clear incentives for the biosimilar manufacturer to want to prevent Medicare negotiation for the reference product. As soon as the price of the reference drug drops, the biosimilar would have to drop their price even lower to compete. 

We'll be watching Stelara as a test case of what happens when a reference product undergoes both Medicare negotiation and biosimilar competition. 

2 things we're anticipating 

5. Cancer drugs were mostly spared — but not for long

Imbruvica was the only cancer drug selected for negotiation. However, we expect this to change in 2028 once HHS starts negotiating Part B drugs. At that point, blockbusters like Keytruda and Opdivo will be on the table, and providers will begin to see impacts on buy-and-bill revenues.  

Check out our analysis of the cancer drugs most likely to be impacted here. 

6. The real surprises will come in 2024

As HHS moves forward with its plan for negotiating Medicare drug prices, manufacturers and the Pharmaceutical Research and Manufacturers of America lobbying group are continuing to file lawsuits against the IRA, making it uncertain whether the law will be implemented in its current form. We'll be monitoring how these cases play out over the next year. 

If and when negotiations do move forward, we'll likely see the biggest surprises. While the IRA closely outlined how HHS should select drugs for negotiation, it left the actual negotiation process much more open to interpretation. The agency has shared that it will evaluate factors such as a drug's clinical benefit, whether it meets unmet medical needs, and its impact on "specific populations," but not exactly how it will do so. 

Just like the rest of the pharmaceutical industry, we'll be watching the factors HHS weighs as they make offers and how these negotiations proceed.