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CMS Reveals 15 Drugs for Medicare Negotiation, Including Ozempic

Author

Jared Dashevsky, MD
January 19, 2025 • Estimated Reading Time: 10 minutes

GRAND ROUNDS

CMS Reveals 15 Drugs for Medicare Negotiation, Including Ozempic

The Centers for Medicare and Medicaid Services (CMS) just revealed the next 15 drugs slated for pricing negotiation under Medicare Part D, and one notable inclusion is Ozempic—a hot topic in healthcare circles.

In this article, I’ll break down the list of these 15 drugs, provide a quick recap of CMS’s journey in drug price negotiations, and explore the pressing question: Will these negotiations truly make an impact?

The Deets: 15 New Drugs to be Negotiated

Below are the 15 drugs CMS selected for the next cycle of drug pricing negotiation under Medicare Part D:

  • Ozempic; Rybelsus; Wegovy: type 2 diabetes, obesity/overweight, cardiovascular disease

  • Trelegy Ellipta: asthma, COPD

  • Xtandi: prostate cancer

  • Pomalyst: kaposi sarcoma, multiple myeloma

  • Ibrance: breast cancer

  • Ofev: idiopathic pulmonary fibrosis

  • Linzess: IBS

  • Calquence: CLL, mantle cell lymphoma

  • Austedo; Austedo XR: chorea in Huntington’s disease, tardive dyskinesia

  • Breo Ellipta: asthma, COPD

  • Tradjenta: type 2 diabetes

  • Xifaxan: hepatic encephalopathy

  • Vraylar: bipolar I, major depressive disorder

  • Janumet; Janumet XR: type 2 diabetes

  • Otezla: plaque psoriasis, psoriatic arthritis

Remember, these selected drugs aren’t arbitrary.

CMS selects for negotiation high-cost drugs based on their total Medicare expenditures, the number of Medicare beneficiaries using them, and other factors (I explain the whole process here). Between November 2023 and October 2024, around 5 million people with Medicare Part D used these drugs, which totaled around $41 billion (14%) in total gross covered Part D prescription drug costs.

Drug pricing negotiations for these drugs will take place this year (announced November 2025), and negotiated prices will become effective in 2027.

Understanding the Current Landscape of Drug Pricing

We’ve moved the needle with drug pricing reform over the past couple of years. Whenever I talk about drug pricing, I find it’s important to catch you up to what’s happened, where we’re at, and where we’re going.

First, U.S. spending on prescription drugs continues to increase, reaching $406 billion in 2022, an 8.4% increase from the prior year and a 60% increase since my freshman year of high school in 2010. Compared to other high-income countries, the U.S. per capita drug spending is over double the average per capita drug spending for 19 other industrialized nations: $858 vs $400.

There are four key reasons for high drug prices:

  1. Market Exclusivity: Pharmaceutical companies enjoy long periods of market exclusivity, allowing them to set high prices without competition. This is bolstered by strong intellectual property protections and FDA-granted monopoly rights. See my previous article on Humira here.

  2. Lack of Price Regulation: Unlike other nations, the U.S. does not regulate drug prices. Pharmaceutical companies can set prices based on market demand and internal cost recovery with minimal government intervention.

  3. Free-Market Focus: The U.S. prioritizes innovation through high returns on research and development. This approach incentivizes new drug development but leads to higher consumer costs.

  4. Complex System: Drug pricing involves multiple stakeholders, including PBMs and insurers, each adding layers of cost. See my diagram below.

To help combat high drug prices, congress signed into law the Inflation Reduction Act (2022). Among the many features of the law, one of them is Medicare Price Negotiations, allowing Medicare (for the first time) to directly negotiate prices for select high-cost drugs.

CMS announced the negotiated prices for the first cycle of drugs selected for negotiations in August 2024:

CMS estimated that if the negotiated prices had been in place during 2023, Medicare would have saved about $6 billion on prescription drugs, which would have reduced overall spending by 22% after considering all discounts and rebates.

Is this true? TBD. I’ll talk more below in my Dissection.

Predictably, not everyone is on board. Drugmakers are challenging these negotiations, with lawsuits filed by industry giants. For instance, Novo Nordisk is grappling with its blockbuster Ozempic being included in the negotiations while Eli Lilly’s Mounjaro escapes similar scrutiny. Here’s a look at some of the manufacturers pushing back:

  • Teva Pharmaceuticals

  • Bristol Myers Squibb

  • Merck

  • Johnson & Johnson

  • Novo Nordisk

  • AstraZeneca

  • Boehringer Ingelheim

  • Novartis

Dashevsky’s Dissection

Will CMS drug pricing negotiations truly make an impact?

I’ve been keeping up with LinkedIn posts from economists and drug supply chain experts, and the answer right now is: probably not.

CMS estimated that the negotiated prices on the first ten selected drugs would have saved about $6 billion in 2023, reducing overall spending by 22% after considering all discounts and rebates.

While this seems like a major win, the reality is more nuanced. I explain more in my previous article on the topic, but I’ll summarize below.

  • The 22% savings from negotiated prices primarily reflect a modest improvement over existing rebate systems, where CMS already secured average rebates of 51% off the list price. The additional 11% savings don’t represent a transformative shift in Medicare spending.

  • CMS absorbs additional costs under the Manufacturer Discount Program, which requires manufacturers to offer discounts during the initial coverage and catastrophic phases of Medicare Part D, offsetting some of the touted savings.

  • With negotiated prices replacing lucrative rebates, Medicare Part D sponsors may lose incentives to keep these drugs on preferred formulary tiers, potentially leading to higher co-pays, stricter utilization requirements, and access barriers for patients.

So, if this drug pricing negotiation program flops, what would be the alternative?

Zeke Emanuel proposed the idea of implementing a subscription model for drug pricing. I’ve been calling this the “Netflix Model” for drug pricing.

Under a subscription-based payment model, CMS could contract with drug manufacturers, such as Novo Nordisk, for a fixed annual fee to secure exclusive access to a drug like Ozempic for Medicare beneficiaries. This model provides predictable costs for CMS while guaranteeing revenue for manufacturers.

Here’s how it could work:

  1. Annual Subscription Fee: CMS pays Novo Nordisk a set yearly amount for unlimited access to Ozempic. This fee ensures the drug is widely available to all Medicare beneficiaries who need it, without the variable costs tied to individual prescriptions.

  2. Spending Thresholds:

    1. Phase 1: Discounted Price: CMS pays a reduced price per prescription up to a pre-determined spending cap.

    2. Phase 2: Near-Zero Cost: Once the cap is reached, CMS can continue to receive additional prescriptions at little to no cost. This incentivizes broad access to the drug without blowing through Medicare’s budget.

  3. Exclusivity for Manufacturers: Novo Nordisk would benefit from market exclusivity within Medicare, giving it an edge over competitors like Eli Lilly’s Mounjaro during the contract period.

A subscription-based model offers some advantages. For one, it provides CMS with predictable costs, as the fixed annual fee ensures that spending won’t spiral out of control, even with increased utilization. This model also broadens patient access. Once the spending threshold is met, additional prescriptions come at little to no cost, removing financial barriers for Medicare beneficiaries who need the drug. For manufacturers like Novo Nordisk, the guaranteed revenue and exclusivity within Medicare create a strong incentive to participate, potentially fostering innovation and competition in drug development.

However, exclusivity agreements may limit access to alternative treatments, potentially disadvantaging patients who could benefit more from competitor drugs like Eli Lilly’s Mounjaro. Additionally, determining the spending cap is a delicate balancing act—a cap set too low may discourage manufacturers from engaging, while an overly generous cap could undermine cost savings.

In summary, CMS’s latest efforts to negotiate drug prices mark a step forward in addressing rising healthcare costs, but the true impact remains uncertain. While the projected savings are promising, challenges like rebate displacement, access concerns, and program costs may decrease their effectiveness. Exploring innovative models like the “Netflix Model” for pricing could offer a more sustainable path to affordability and access for Medicare beneficiaries.

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