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The US government has introduced new regulations to control the prices of the top-selling drugs in an effort to reduce healthcare costs, heralding a significant transformation for the pharmaceutical industry.
These rules empower the federal government to negotiate lower prices for the most expensive prescription drugs manufactured by Pfizer, Merck, and other pharmaceutical companies that are purchased through Medicare, the taxpayer-funded healthcare system for retirees.
This reform, vehemently opposed by the pharmaceutical industry, aims to alleviate the burden of exorbitant costs on Americans, who face some of the highest prices for prescription drugs among developed nations. In 2022, the US spent over $600 billion on medicines, accounting for almost half of the global expenditure, as reported by Statista.
President Joe Biden, who is set to deliver a speech on the changes at the White House later today, stated, “While the pharmaceutical industry continues to generate massive profits, millions of Americans are confronted with the impossible choice of prioritizing life-saving medications over basic necessities like food, rent, and other essentials. Those days are coming to an end.”
The Department of Health plans to commence negotiations this year, with the implementation of any agreed-upon prices slated for 2026. The ten drugs on the initial list, which cost Medicare $50 billion between June of last year and May of this year, faced a financial burden of $3.4 billion on seniors who were not reimbursed by insurers, according to the White House.
The initial list includes Jardiance, a diabetes pill by Boehringer Ingelheim and Eli Lilly; Eliquis, a stroke prevention medicine by Pfizer and Bristol Myers Squibb; and Entresto, a Novartis drug for heart failure treatment. Additional drugs will join the list for government negotiations.
Under the proposed reforms, a minimum of 25% reduction from a drug’s list price is expected, although steeper discounts may be negotiated for certain drugs by the government.
The Congressional Budget Office estimates that the drug price negotiation aspect of Biden’s reform package could save Medicare over $100 billion over the next decade.
The pharmaceutical industry has filed multiple lawsuits in an attempt to halt these reforms, part of Biden’s Inflation Reduction Act. They argue that the restructuring of drug pricing will hinder innovation and impede the development of life-saving medications.
Some pharmaceutical companies dispute the annual cost figures provided by the Department of Health. BMS claims that Medicare’s $16.4 billion annual cost for Eliquis is over three times the actual amount spent on the blood clot drug when factoring in all rebates, discounts, and fees paid to the public insurer.
Phrma, an industry trade body, believes that the reforms are the result of a “rushed process” aimed at short-term political gains rather than prioritizing patient well-being.
Stephen J Ubl, CEO of Phrma, stated, “Many of the medicines selected for price setting already benefit from significant rebates and discounts due to robust negotiations in the private market.”
However, a senior White House official emphasized that the Biden administration remains steadfast in the face of legal challenges.
The official added, “Americans should not have to pay more than citizens of other developed nations for life-saving prescriptions just to bolster the profits of Big Pharma. Drug companies are resorting to legal action in an attempt to block negotiation, as they were unable to achieve their goals through Congress.”
Manufacturers who fail to comply with the negotiation process may be subject to an excise tax, starting at 65% of a product’s sales in the US.
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