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Medicare Spent $180 Billion Over Six Years on 10 Drugs Facing Price Negotiations
Manufacturers have recouped average cost to develop medications many times over
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In just six years, Medicare spending on the 10 prescription drugs picked for the first round of Medicare price negotiations greatly exceeded the average cost to develop new drugs, according to a new AARP analysis. The findings counter industry claims that negotiations would stifle innovation.
Pharmaceutical companies have long argued that allowing Medicare to negotiate for lower prices would discourage research and development of new drugs. However, the spending analysis demonstrates that these manufacturers have already recouped what it cost them to bring a new drug to market many times over — a lucrative incentive to develop more drugs.
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"The reward for developing meaningful new prescription drugs remains high," Leigh Purvis, AARP's prescription drug policy principal, says in a new blog post explaining the findings. "Based on total Medicare Part D spending alone — which does not include revenue from all other U.S. and non-U.S. consumers — the selected drugs have recouped the average cost to develop a new drug several times over between 2017 and May 2023."
While the exact cost to research, develop and bring to market each of the 10 drugs slated for Medicare Part D price negotiations isn’t publicly available and would vary by drug, the pharmaceutical industry has estimated that those costs average $2.6 billion per drug.
Video: How Medicare Negotiations Impact Prescription Drug Costs
‘Eye-popping’ drug spending
Take Eliquis, for example, the medication that Medicare spends the most on annually. The blood thinner generated $54.4 billion in spending by the federal health program between 2017 and May 2023. That’s more than 20 times the average cost to develop a new drug. Eliquis came on the market in 2012.
Overall, Medicare spent $180.7 billion during the six-year period AARP reviewed on the 10 drugs selected for the first round of negotiations.
Here's what Medicare paid for each:
- Eliquis, blood thinner: $54.4 billion
- Jardiance, treats diabetes: $51.6 billion
- Xarelto, blood thinner: $26 billion
- Januvia, treats diabetes: $21.6 billion
- Farxiga, treats diabetes, heart failure, chronic kidney disease: $6.5 billion
- Entresto, treats heart failure, $7.3 billion
- Enbrel, rheumatoid arthritis, psoriasis: $13 billion
- Imbruvica, blood cancers: $14.5 billion
- Stelara, Crohn's disease, ulcerative colitis: $7.1 billion
- Novolog, diabetes: $14.8 billion
"There is no case to be made that these negotiated prices are going to hurt [manufacturers] in a way that will actually negatively impact innovation," Purvis says. She called the amount of money the makers of the selected drugs have made "eye-popping."
Giving Medicare the ability to negotiate the prices of these medications, Purvis adds, will stop drugmakers for the selected drugs from continuing to make outsize price hikes every year. Once a drug's price has been negotiated, pharmaceutical companies will not be allowed to increase that price beyond the rate of inflation, until there is a generic competitor. Already, a provision of the same law that calls for Medicare to negotiate drug prices includes a provision that requires drugmakers to pay Medicare a rebate if they raise the price of a drug more than the rate of general inflation.
Negotiations for the 10 selected drugs are slated to begin in early October. The negotiated prices will be announced by Sept. 1, 2024, and take effect in 2026.
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