What are the plans for the Biden administration's Medicare drug price negotiations?

• The Medicare program and drugmakers reached a historic agreement on the pricing of the first 10 medications.
• The announcement marks the start of a contentious, multi-step procedure that may result in greater savings for taxpayers and older citizens, while also increasing the pressure on pharmaceutical corporations.
• The Inflation Reduction Act, signed into law two years ago, includes a crucial provision.

On Thursday, the Biden administration achieved a significant milestone in Democrats' long-standing effort to utilize Medicare to reduce prescription drug costs by disclosing new prices for the initial 10 medications to be negotiated between the federal program and pharmaceutical companies.

The Inflation Reduction Act, signed into law two years ago, includes a controversial, multi-round process that could save money for taxpayers and older Americans while putting pressure on pharmaceutical companies.

The agreed-upon prices, effective in 2026, will establish the basis for future negotiations that will commence next year. These discussions are likely to influence drug prices for numerous widely used medications produced by the world's largest pharmaceutical companies in the years to come.

According to Leigh Purvis, a prescription drug policy principal with AARP Public Policy Institute, the expectation is that this is just the beginning, and these are the first ten drugs.

Purvis stated that although individuals may become frustrated when their drug is not on the list, it will eventually be included if they are using a drug that is causing high costs.

The negotiated prices for the first 10 drugs starting in 2026 are not yet publicly available, making it difficult to determine how much a Medicare plan and a patient would save on a given drug. Additionally, copays could vary depending on the Part D plan a patient has.

Tricia Neuman, executive director for the Program on Medicare Policy at health policy research organization KFF, stated that determining the starting point is difficult because the net prices after rebates are not publicly available.

The estimated savings for Medicare and beneficiaries from the new negotiated medication prices is approximately $7.5 billion in 2026.

Neuman stated that the negotiations "seemed to go relatively smoothly" and the "aggregate savings are fairly impressive." She added that as prices of more drugs are hashed out during future rounds, it will "increase the level of savings over time."

The upcoming price talks may intensify the competition for drugmakers, as many of the medications under discussion are approaching patent expiration, allowing for the entry of cheaper generic alternatives that will reduce revenue.

Eliquis, a blood thinner, will lose patent exclusivity in the U.S. starting on April 1, 2028, and also faces patent expirations in certain EU markets in 2026.

In a research note on Thursday, Leerink Partners analyst David Risinger stated that drugs that are not as close to losing market exclusivity could be chosen for future rounds of negotiations over time.

The Biden administration will choose up to 15 additional drugs for the next round of price negotiations, with new prices taking effect in 2027. Manufacturers must decide whether to participate in the program by the end of February, which is a no-brainer for companies as they face high excise taxes or loss of access to federal Medicare and Medicaid programs if they do not participate.

Jeff Jonas, a portfolio manager at Gabelli Funds, stated on Thursday that the pain will intensify over time. He pointed out that the next round of price negotiations will likely involve 's top-selling diabetes drug Ozempic.

There were rumors that the government may have given pharmaceutical companies a break this year due to it being an election year and the first time they were being evaluated.

Starting in 2029, the Centers for Medicare and Medicaid Services can negotiate prices for another 20 drugs annually.

Medicare Part D drugs will be the only ones selected for the first two years of negotiations, while more specialized drugs covered by Medicare Part B, typically administered by doctors, will be added for the 2028 round.

A bigger threat to the pharmaceutical industry could be the lack of steep discounts on Medicare Part B drugs compared to those covered by Part D.

Since rebates for Part B medications are limited, they have a greater potential to fall in price compared to heavily rebated Part D drugs, according to Risinger's assumption, as stated in an interview with CNBC.

Some big cancer drugs, including Keytruda, could be included in negotiations for 2028 price changes, as Jonas noted.

If elected, Vice President Kamala Harris, the Democratic presidential nominee, would likely expand the scope of negotiations and be more aggressive on discounts, according to Jonas.

The original law was passed by Harris casting a tiebreaking vote in the Democratic-held Senate. Whether a new law can be passed to strengthen the policy depends on which party controls the House and Senate, as stated by Neuman.

Democrats in Congress are showing some interest in doing that, but the law will depend on which party is in control, according to Neuman.

The pharmaceutical industry contends that the negotiations may adversely affect their revenue, profits, and innovation in the long run.

The CEO of PhRMA, the largest lobbying group in the pharmaceutical industry, stated on Thursday that the price negotiations could lead to a reduction in treatments for cancer, mental health, rare diseases, and other conditions because it changes the incentives for drug development.

Medicare can begin negotiating prices for small-molecule drugs nine years after they receive FDA approval, compared to 13 years for biologics. Small molecule drugs are made of low-weight chemicals, while biologic medicines are derived from living sources.

Small-molecule drugs investment may be discouraged by the industry due to the distinction.

— CNBC's Angelica Peebles contributed to this report