The Centers for Medicare & Medicaid Services (CMS) has announced substantial price reductions for 15 top-selling prescription drugs, achieving an average 44% decrease in net prices compared to 2024 levels. This marks a significant increase from the 22% reduction achieved in the first round of negotiations under the Inflation Reduction Act (IRA).
Savings for Beneficiaries and the System
The 15 selected drugs accounted for $42.5 billion in Medicare Part D spending last year, with beneficiaries spending $1.7 billion out-of-pocket. The new negotiated prices are projected to save beneficiaries an estimated $685 million in direct costs. This reduction is a direct result of the IRA’s drug pricing provisions, which allow Medicare to negotiate prices for high-cost medications.
How the Negotiations Work
The IRA mandates that small molecule drugs must be at least seven years post-launch (without generic competition) and biologics at least 11 years post-launch (without biosimilar competition) to be eligible for negotiation. The chosen drugs are among the top 50 in Medicare Part D expenditures, with future negotiations expanding to include Part B drugs starting in 2026. The process involves a series of offers and counteroffers between CMS and pharmaceutical manufacturers, factoring in research and development costs, clinical benefits, and market dynamics.
Price Caps and Rebates Drive Savings
A key component of the negotiation process is establishing a ceiling price for each drug. This ceiling is either the current net price after rebates or a percentage of the non-federal average manufacturer price, typically 75% for older drugs and 40% for those with longer-market exclusivity. The difference between negotiated rebates before IRA and the negotiated prices under the law is substantial: over half of the drugs in this round had rebates below 25% previously, contributing to the larger 44% average drop in net price.
Long-Term Impact and Stability
The IRA’s drug price negotiations are now codified into law, ensuring their permanence unless repealed. This contrasts with recent “most-favored nation” pricing deals, which rely on executive orders and voluntary agreements that could be reversed by future administrations. The mandatory nature of the IRA process is underscored by pharmaceutical companies, with Novo Nordisk acknowledging it as a “mandatory price-setting process.”
Complex Pricing Landscape
The pricing for drugs like Ozempic and Wegovy illustrates the complicated landscape. List prices are high ($950 and $1,350 per month), but insured patients often pay lower co-pays ($25-$150). Net prices after rebates can be 58% lower, and direct-to-consumer platforms offer further discounts (under $350). The IRA’s maximum fair prices ($274-$385 for Wegovy and Ozempic) are superseded by the most-favored nation prices ($245) where applicable, while TrumpRx offers $345 pricing.
Beyond Price: Capping Out-of-Pocket Costs
Perhaps more impactful for beneficiaries than direct price cuts is the IRA’s cap on annual out-of-pocket expenses. This starts at $3,300 in 2024 and drops to $2,000 in 2025, providing significant relief for those using high-cost specialty medications. This provision alone is saving many Medicare recipients thousands of dollars annually.
The IRA’s drug price negotiations represent a fundamental shift in how Medicare pays for prescription drugs, ensuring long-term savings for both beneficiaries and the system.
