How Meaningful are the Medicare Price Negotiations?

Dayen did a deep dive on this at the Prospect and…..might not be so meaningful at all:

The day that the Biden administration revealed the first ten drugs under its Medicare price negotiation process, the companies that own and market those drugs saw their stock prices go up. “Today is a nonevent,” said one industry analyst.

Part of this is because the actual negotiated prices won’t take effect until 2026, too far in the future for Mr. Market to blink an eye. But there’s another factor that has been highlighted: Some of the drugs are going to face generic competition before we ever get to 2026. If that competition is legitimate, those drugs will no longer be eligible for price negotiation. And under the rules of the law, the administration can’t select another drug to get the number back up to ten.

All that means that the ten drugs being negotiated could be whittled down to eight, or six, or even fewer.

To the average senior, it doesn’t matter if their prescription prices go down because of a new generic on the market or because of a government negotiation. And if the program makes it harder for drug companies to avoid competition, that’s certainly positive. But there’s an opportunity cost here. If drugs were already scheduled for competition and they’re put in the negotiation bucket, the result could be fewer drugs with their prices forced downward.

The real problem is that those deciding what drugs to negotiate on are hemmed in by the terms of the law. The Centers for Medicare & Medicaid Services (CMS) cannot select a drug for negotiation until seven years after its launch for small-molecule drugs, and up to 11 years after launch for so-called “biologics.” In the future, this will incentivize higher launch prices, so drug companies can make back their investment early before the government can react. For now, the three-year lag between the negotiation announcement and the prices taking effect makes it difficult to choose the most outrageously priced drugs while making sure that they won’t face generic competition before negotiations are complete.

One tactic the drug companies might use is to invite “competition” in name only, for a generic alternative that isn’t heavily marketed or priced aggressively, in order to ward off negotiation. This is where regulation from CMS will really matter. “CMS is being very clear in articulating that they will be critical about ensuring that bona fide marketing is actually taking place,” said Steve Knievel, an advocate with Public Citizen’s Access to Medicines program. CMS won’t “consider it sufficient [just] for a product to have a generic or a biosimilar that has received approval from FDA.”

Stelara, the $119,951-per-year plaque psoriasis drug, presents a good example of the conundrum. There is a “high likelihood” of market entry from a biosimilar competitor in January 2025, before the 2026 rollout of newly negotiated prices. There is also expected to be competition for Xarelto, a blood clot drug, in 2025, and by 2026, 25 different competitors could be making generics for Januvia, a diabetes drug on the negotiation list. Entresto, taken to prevent heart failure, should also have generic competition by then.

I don’t write often about medical care issues because I don’t know much about it, but this doesn’t look super great to me.