On January 17, 2025, during the waning days of the Biden administration, the Centers for Medicare and Medicaid Services (“CMS”) added 15 drugs for Medicare price negotiation. This second wave of negotiations under the Medicare Part D Maximum Fair Price Negotiation Program (the “MFP Program”) are the Type 2 diabetes drug Ozempic (semaglutide) and its weight loss form, Wegovy, as well as four oncology drugs.
However, within days of assuming office, the Trump Administration, among its very first Executive Orders, took aim at several Biden-era policies intended to lower the cost of prescription drugs for Medicare and Medicaid beneficiaries. The new administration is nibbling at the edges of the drug pricing reduction approach favored by Biden. The potential impact of broader recission efforts on drug prices for beneficiaries and government spending, as well as on drug manufacturers, PBMs, pharmacies and health plans remains to be seen.
The Biden Administration’s Approach: Medicare Part D Maximum Fair Price Negotiation and Executive Order 14087
The MFP Program, established by the Inflation Reduction Act (IRA) signed into law by President Biden in 2022, is intended to lower the cost of medication for Medicare beneficiaries. In the first round of negotiations, CMS identified an initial tranche of 10 drugs for price negotiation. The negotiation cycle achieved, according to results announced by the Biden administration, projected savings of $1.5 billion in out-of-pocket costs for beneficiaries. In total, Medicare projects savings of at least $6 billion in 2026 due to lowered prices on these drugs. Under the law, CMS initiates the drug negotiation process when it publishes the list of drugs selected for negotiation in the upcoming year. The current schedule of price negotiations follows a strict timeline:
- On or before February 28, 2025: CMS and the manufacturers of the selected drugs execute a voluntary agreement to negotiate maximum fair prices.
- By March 1, 2025: Manufacturers submit specific economic and market data for selected drugs to CMS, which may include research and development costs, cost of production, sales and revenue data.
- At that point, the IRA provides for potentially several rounds of offers and counter offers between CMS and the manufacturers.
- By November 1, 2025: CMS and the manufacturers of the selected drugs complete the price negotiations.
- On November 30, 2025: the negotiated maximum fair price for the selected drugs are published.
- On January 1, 2026: the maximum fair prices for the 15 selected drugs become available in all Medicare Part D plans.
If the manufacturer and CMS cannot reach an agreement on a maximum fair price during the negotiations outlined above, CMS will ultimately issue a final written offer for the price, which the manufacturer can accept or reject. However, if the manufacturer rejects the final offer, they may face an excise tax by the IRS. Beneficiaries are expected to see savings as deductibles and co-insurance are calculated using the negotiated rates rather than the brand drug list price.
The inclusion of the weight loss drugs is significant, as lower net prices may lead to Medicare extending coverage for those drugs. In December, the Biden Administration proposed overturning the decades long prohibition on the coverage of weight loss drugs by Medicare. Notably, all negotiations in this cycle will occur under the Trump Administration.
Although the initial impact of the IRA on government pricing appears to be significant and in line with earlier government estimates,[1] the intent of the MFP Program is to reduce drug costs to beneficiaries, not the government. As Rep. Frank Pallone (D-NJ) noted in a statement, the addition of the recent cohort of drugs to the original 10 drugs selected for inclusion in the MFP Program means that up to one-third of all Medicare Part D spending is now subject to price negotiation. This underscores the fact that the drugs subject to the MFP Program are not necessarily those which burden the beneficiary the most but rather represent the largest financial cost to the government. The Trump Administration, as expected, continues to pursue additional, and potentially alternative means to achieve the goal of drug price reduction for beneficiaries.
The Trump Administration’s Executive Orders and Policy Shift
In a move that may foreshadow a more aggressive approach to the drug cost reduction efforts of his predecessor, within hours of taking office, President Trump rescinded several Biden-era Executive Orders, including:
Executive Order 14087: which directed the Department of Health and Human Services (“HHS”) to explore new healthcare payment and delivery models that would lower drug costs and promote access to innovative drug therapies for government health plan beneficiaries.
Executive Order 14009: focused on strengthening Medicare and the Affordable Care Act.
Executive Order 14070: aimed at continuing to strengthen Americans’ access to affordable, quality healthcare.
Of note, and perhaps a clue to the Administration’s new approach, is the fact that Executive Order 14087 mandated the exploration of new ways to lower out of pocket costs for prescription drugs. Drug cost containment initiatives may of course continue, albeit using modified version of the current approaches, or entirely new mechanisms.
Potential Directions for Trump’s Drug Pricing Strategy
Despite the initial flurry of executive activity, the IRA, along with its provisions for Medicare drug price negotiations, remain in full force and effect. A President may not, simply by Executive Order, repeal a statute – this would require congressional action, and that will take considerable time, not to mention political will. Furthermore, while existing regulations also remain in place, there is uncertainty about future drug pricing policies and the federal government’s strategy for managing prescription drug costs. It is fair to say that every new President puts their own stamp on this politically sensitive issue, so in and of itself, there is nothing yet to indicate immediate plans for a complete overhaul of the drug pricing system.
Stakeholders—including drug manufacturers, pharmacies, PBMs, and health plans—should remain vigilant as the administration’s approach unfolds. For example, changes to rebate structures or transparency requirements could disrupt existing business models, while shifts in FDA policies could impact market competition.
One area of potential immediate impact of President Trump’s initial foray into this space may be to stymie the ongoing efforts of the Center for Medicare and Medicaid Innovation (“CMMI”) to develop and implement new models aimed at improving prescription drug affordability and access. It is possible that these efforts may continue but take a different approach.
With respect to the future status of Medicare price negotiations, the Trump Administration could
While the administration’s strategy is still evolving, its prior actions offer clues about potential approaches:
International Reference Pricing: President Trump could push for international benchmarking of prices, sometimes called the most favored nation model or international reference pricing. Broadly, this is a system of price controls in which an average or minimum price across a group of countries with similar gross domestic output per capita (i.e. the “basket”) can serve as benchmark to manage drug spending and negotiate prices with manufacturers.
Transparency Regulations: The Administration might also consider implementing nationwide pharmacy price transparency regulations, an approach that the first Trump administration pushed for with respect to hospital pricing. This may require pharmaceutical manufacturers, pharmacies, PBMs, health plans and even drug wholesalers to disclose a range of pricing information, including wholesale acquisition cost (“WAC”) of a drug, manufacturer price, and potentially rebates and discounts provided to payors. Several states have already passed similar legislation, and this has led to the implementation of prescription drug affordability boards which have the authority to review high-cost drugs and in some states set an upper payment limit to ensure no one pays more than that amount in the state.
Rebate Reform: President Trump previously considered an overhaul of the rebate system, proposing that Medicare Part D rebates be paid directly to beneficiaries at the pharmacy counter. This approach would materially impact on the way drug rebates and other discounts are negotiated. Although challenging to implement, the drug distribution ecosystem, and in particular pharmacies, should monitor this potential sea change in rebates.
Tariffs and Domestic Production: Additionally, the President’s approach to the use of tariffs may have an unintended collateral impact on the cost of imported drugs. The United States imports a significant percentage of its generic drugs, and if imported medications are included in the proposed tariffs, prices could potentially increase. Even if manufacturers were able and willing to produce such medications, with domestically sourced components, supply chains would require time to prepare.
FDA Generic Drug Approvals: Finally, in the administration’s previous incarnation, expediting FDA approvals for generic drugs was a priority. It is likely that this approach will continue, and manufacturers should be prepared for the increased competition to brand drugs that this process may entail.
How Frier Levitt Can Help
Although their approaches may vary, recent administrations have all grappled with the rising price of drugs, perceived lack of transparency, and the resulting impact on access and adherence to care, which have downstream implications for both beneficiaries and government spending.
Frier Levitt’s experienced attorneys not only monitor impactful changes in federal and state laws but provide proactive strategies to ensure compliance and mitigate risks. From navigating Medicare drug pricing policies to addressing FDA rule compliance, we are here to guide stakeholders through the complexities of an ever-evolving regulatory landscape. Contact us today to learn how we can support your organization in adapting to these changes.
[1] See Impact of Federal Negotiation of Prescription Drug Prices, Anna Anderson-Cook and Richard G. Frank, August 19, 2024.
