When the Inflation Reduction Act of 2022 was signed into law in August 2022, it included several provisions aimed at reducing drug spending in the Medicare program. One key provision required Medicare to begin negotiating drug prices with pharmaceutical companies for certain high-expenditure drugs that lack generic competition in the market. The list of the first 10 drugs selected for negotiation was announced in August 2023, with Medicare publishing the negotiated prices for these drugs on August 15, 2024. These negotiated prices will go into effect for Medicare enrollees on January 1, 2026.
In 2021, Medicare spent $121 billion on retail prescription drugs, which accounted for 32% of the US’s total spending on retail prescription drug costs that year. With the publication of the negotiated drug prices for the first 10 drugs, Medicare announced that if the new, lower prices were available in 2023, they would have led to $6 billion in savings, or 22% lower net spending on these 10 drugs. Moreover, Medicare estimates that after the negotiated prices take effect, Medicare beneficiaries themselves will see savings of $1.5 billion in 2026 under the standard Medicare Part D benefit design. Overall, the Congressional Budget Office estimates that the drug negotiation provision of the Inflation Reduction Act will save the Medicare program $98.5 billion over ten years (2022-2031).
By statute, the Inflation Reduction Act sets a ceiling on Medicare’s negotiated price based on current net prices or discounts off of a drug’s non-federal average manufacturer price. Although it is likely that the Biden Administration was able to negotiate price discounts below the ceiling, this is not publicly available information for each selected drug.
This analysis compares the new Medicare negotiated drug prices to current U.S. list prices, prices negotiated by the Department of Veterans Affairs (VA), and prices in 11 OECD countries of similar size and wealth. Overall, Medicare was able to negotiate lower drug prices than the VA, but consistently higher prices than peer nations achieved. On average, Medicare negotiated prices are 2.8 times the average of drug prices in the 11 comparable countries. While the drug industry has strenuously objected to the Medicare drug negotiation program and argued that it will stifle innovation, this analysis shows that the price concessions negotiated thus far are modest in comparison to those seen in other countries.
Medicare negotiated drug prices are lower than list prices and VA negotiated drug prices
For each of the 10 drugs selected for negotiation in 2024, the table above compares the 2024 list price, the price negotiated for Medicare by the Biden Administration, and the maximum price for the “Big Four” agencies – the VA, Department of Defense, Public Health Service, and Coast Guard – which are negotiated by the VA. (Note that the Big Four agencies can pay lower prices than listed above through temporary discounts or, for the VA and Department of Defense, through bulk purchase orders).
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Although the Medicare negotiated drug prices represent a significant discount from the corresponding list prices, list prices do not account for any rebates or discounts that are currently negotiated for these drugs and are thus higher than the pre-negotiation net prices that Medicare Part D plans have been paying. Big Four drug prices were higher than the new Medicare negotiated prices for all 10 drugs, which represents a change from a prior Congressional Budget Office analysis that showed that Big Four prices for top-selling brand-name drugs were 20% lower on average than net prices paid by Medicare Part D in 2017.
Numerous other countries have long-established practices for securing lower prices from drug companies. The chart below compares the drug prices negotiated by Medicare with drug prices in 11 other OECD nations of similar size and wealth. While Medicare’s new negotiated prices for these 10 drugs are on average 22% lower than current net prices in Part D, Medicare will continue to pay higher prices than peer nations do for the same drugs once these prices take effect in 2026.
Drug prices negotiated by Medicare are higher than those in peer nations
In all but one instance (the price of Stelara in Germany), every country in this comparison has lower prices than the Medicare negotiated prices for all 10 drugs. In nearly half of cases, Medicare’s negotiated prices are over three times the prices in comparably large and wealthy nations. The countries most commonly having the lowest prices are Japan (lowest for Jardiance, Entresto, Enbrel, and Imbruvica) and Australia (lowest for Eliquis, Xarelto, and Farxiga). Germany and Canada most often have the second-highest prices relative to the Medicare negotiated prices. Across these 10 drugs and 11 comparable countries, the Medicare negotiated price is 78% higher on average than the next highest price country.
Medicare-negotiated drug prices are as much as 3.9 times the average of drug prices in comparable countries
The new Medicare negotiated prices are higher than the average of drug prices in 11 wealthy, OECD countries (Australia, Austria, Belgium, Canada, France, Germany, Japan, Netherlands, Sweden, Switzerland, United Kingdom) for all 10 drugs. Specifically, the Medicare price ranges from being 1.6 times the average for Stelara ($4,490 versus $2,822) to 3.9 times the average for Jardiance ($204 versus $52), when compared to the comparable country average. On average across all 10 drugs, Medicare prices are 2.8 times the average of prices in the 11 comparable countries included. (These are simple averages and therefore are not weighted by the number of people or prescriptions in each country).
Factors that lead to differences in prices
While Medicare is a large payer of healthcare in the United States, it exists in the context of a fragmented system of multiple payers, including commercial insurers who negotiate their own drug prices. Even within Medicare, drug coverage is offered by multiple private insurers and other entities that are generally responsible for negotiating drug prices (with the exception of drugs selected for negotiation under the new program). In most other countries included in this analysis, the government is more involved in making coverage determinations and setting universal drug prices across a broad array of drugs.
Numerous other factors may also help to explain the differences between prices in other wealthy OECD nations and the new Medicare negotiated prices. One possible factor is the presence of generic or biosimilar medications in international markets that are not available in the U.S. For example, there are generic competitors available in all 11 comparable countries included in this analysis for both Januvia and Enbrel. In fact, for eight of the 10 medications studied (all except Jardiance and Imbruvica), there was at least one comparable country in which a generic or biosimilar was found in the country’s national formulary. In general, research has shown that the introduction of generics into the market helps to bring the prices of brand-name drugs down via increased competition.
In contrast, one of the criteria Medicare used to identify drugs for price negotiation was that they were single source brand-name drugs that did not already have generics available and, for biological products, were not expected to have biosimilars on the market before September 1, 2025. (While two of the 10 drugs, Farxiga and NovoLog, currently have “authorized generics” available, they are made by the same company as the branded drug and are therefore still considered single source). Although most of the 10 drugs still have several years left on their patents—which prevents generics from entering the market—it is notable that two biosimilars for Stelara (Wezlana and Stelardsi) will be launching in early 2025. Differences in U.S. and international patent laws, as well as differences in the regulatory groups that approve medications for public use, help to account for why generics may be available in other countries but not the United States.
Another key factor that likely leads to differences in negotiated drug prices is the combination of pricing strategies and benchmarks used in the negotiation. For example, while Medicare evaluates the costs to manufacturers to research, develop, and produce the drug when setting prices, only two of the 11 comparable countries also consider these factors. A more common pricing strategy used by both Medicare and nine of the 11 comparable countries is value-based pricing, which evaluates the clinical effectiveness and cost-effectiveness of drugs. Implementation of the same overarching pricing strategy, however, can vary between countries – for instance, Medicare is prohibited from using a standardized measure called Quality Adjusted Life Years (QALYs) to assess cost-effectiveness, while countries like the United Kingdom, Sweden, Australia, and the Netherlands incorporate QALYs when pricing drugs. Importantly, Medicare does not use drug prices in other countries as a benchmark in the process of arriving at negotiated prices. In contrast, eight of the 11 comparable countries do employ international reference pricing (IRP), which refers to limiting drug prices based on their prices in a group of economically similar countries.
The future of Medicare price negotiations
Medicare is slated to select additional drugs for price negotiations in the future. Up to 15 more drugs will be selected for negotiation in 2026 and 2027, with up to 20 more drugs selected for negotiation in each subsequent year. It is expected that semaglutide, the drug branded as Ozempic and Wegovy, popular drugs used for diabetes and weight loss, will be included in the next round of negotiations. List prices for Ozempic are significantly higher in the U.S. than in other wealthy, OECD countries. Additionally, Ozempic was sixth among the top 10 selling Medicare Part D drugs in 2022 (up from 10th place in 2021), with total spending of $4.6 billion. Medicare is required to release the list of drugs selected for the next round of negotiations by February 1, 2025.
Methods
Prices were examined for the 10 prescription drugs listed in the table below. The price of a 30-day supply was calculated using the specific dosages and frequencies listed in the table below. These dosages were selected based on FDA labelling information. If the medication packaging did not include the exact amount of the drug equivalent to a 30-day supply, the drug’s cost per day was calculated and then multiplied by 30 days. For example, if the packaging only included 28 tablets and a 30-day supply requires 30 tablets, the price was divided by 28 to get the price for one tablet and then multiplied by 30 to get the price for 30 tablets. Prices were then converted to U.S. dollars using exchange rates available as of June 30, 2024.
International drug prices for Australia, Austria, Belgium, France, Japan, the Netherlands, Sweden, Switzerland, and the United Kingdom were found on each country’s respective national drug formulary website. Canada does not have a national drug formulary; instead, each province determines their own formulary and negotiates their own drug prices. Given that Ontario is the most populous province in Canada, Ontario’s formulary was used. The Ontario formulary did not include Stelara or Imbruvica; for these medications, prices from Quebec’s formulary were used, as Quebec is the second most populous province. The German government’s database of drug prices in the country was discontinued on January 1, 2024. As a result, prices were taken from shop-apotheke.com and medikamente-per-klick.de, which are two of the top three most used online German pharmacies. The drug prices available to the Big Four agencies were found on the VA’s National Acquisition Center website. All reported drug prices reflect prices as of September 17, 2024.
Farxiga is sold as “Forxiga” outside of the United States. Similarly, NovoLog is sold as “NovoRapid” internationally. Both NovoLog and Fiasp are manufactured by Novo Nordisk, however, Fiasp products were not available in several countries, so only prices for NovoLog are reported here. For injectable medications (Enbrel, Stelara, and NovoLog), prices for the drug in a pre-filled pen (as opposed to the medication in a vial) were selected. For medications with differences in induction versus maintenance dosing, the maintenance dose and frequency were used.
Appendix
Medicare published their negotiated prices for the ten drugs in two ways: 1) as a single price per “30-day equivalent supply” to show the average price for someone taking the drug and 2) specific prices per each NDC-11 code, which correspond to different dosage forms and strengths of the drug. The single price per “30-day equivalent supply” is weighted across the different dose forms and strengths of the drug, as described in the detailed guidance published by CMS. The following table compares the single weighted price with the price for the specific NDC-11 that matches the dosage and frequency of the drug that was used in calculating the drug prices for the other countries in this comparison. Overall, the prices are very similar, so the prices per specific NDC-11 codes were shown in the main charts to allow for more direct comparisons to the other countries.
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