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Despite suing the Biden administration over a controversial new government program aimed at reducing the cost of prescription drugs for older Americans, New Jersey’s biggest pharmaceutical companies are taking part in price-setting negotiations.

Designed to address rising health care costs, the Medicare Drug Price Negotiation Program is part of President Joe Biden’s signature Inflation Reduction Act, which passed two years ago in a party line vote.

By empowering Medicare to have a say in setting drug prices for the first time in its six-decade history, the White House believes it will provide much-needed relief to the 9 million seniors who are currently paying up to $6,497 in out-of-pocket costs per year.

While the administration argues that the price adjustments will save taxpayers $160 billion by reducing how much Medicare pays for drugs through negotiation and inflation rebates, the pharmaceutical industry maintains the program will curtail profits and ultimately compel drugmakers to scale back development of groundbreaking new treatments.

Over the next four years, the government-run health insurance plan will negotiate prices for up to 60 drugs covered under Part D and Part B and up to an additional 20 medications every year after that.

In late August, the U.S. Centers for Medicare and Medicaid Services published a list of the first 10 high-cost drugs to target for negotiations, with settled prices set to take effect in January 2026.

The drugs selected to undergo negotiations are:

• Eliquis, a blood thinner from Bristol-Myers Squibb and Pfizer
• Xarelto, a blood thinner from Janssen Pharmaceuticals
• Januvia, a diabetes drug from Merck
• Jardiance, a diabetes drug from Boehringer Ingelheim and Eli Lilly and Co.
• Enbrel, a rheumatoid arthritis drug from Immunex Corp.
• Imbruvica, a drug for blood cancers from Pharmacyclics and Janssen Biotech
• Farxiga, a drug for diabetes, heart failure and chronic kidney disease from AstraZeneca and Bristol-Myers Squibb
• Entresto, a heart failure drug from Novartis
• Stelara, a drug for psoriasis and Crohn’s disease from Janssen Biotech
• NovoLog, for diabetes from Novo Nordisk

According to CMS, these medications “are among those with the highest total spending” in Medicare Part D, estimating that seniors paid $3.4 billion in out-of-pocket costs in 2022 on the 10 prescriptions.

Additionally, the selected drugs accounted for $50.5 billion in total Part D gross covered prescription drug costs, or about 20% of total Part D gross covered prescription drug costs between June 1, 2022, and May 31, 2023, the administration said.

Although participation in drug price negotiations is voluntary, those who choose not to engage face the option of paying excise taxes or terminating their relationships with Medicaid.

Two months after the list was issued, CMS announced that all companies that make the drugs selected for the first cycle opted to take part in talks — even though most of them sued the administration.

At the time, CMS Administrator Chiquita Brooks-LaSure said officials “look forward to engaging with the drug manufacturers” and that the agency’s goal “is to ensure access to innovative treatments and therapies for people that need them when they need them.”

She also pledged that the government “will negotiate in good faith consistent with the requirements of the law on behalf of people with Medicare.” Soon after, CMS began reaching out to those companies, patients and other stakeholders on factors impacting drug pricing.

Per the timelines established for the program, CMS is due to send initial offers for each selected medication no later than Feb. 1. As part of the process, the agency must include a justification for why the price is fair based on criteria like U.S. sales volume, manufacturer research & development costs, and federal financial support for the drug’s development.

The agency must also consider data on pending or approved patent applications and exclusivities – a period in which a brand-name drug is protected from generic competition.

After receiving offers, companies have 30 days to accept or counter it. If CMS rejects a counteroffer, it can arrange up to three meetings with the drugmaker to discuss other price options through the spring and summer, with the negotiation period ending Aug. 1.

CMS will then publish agreed-upon prices Sept. 1. However, if the drugmakers fail to settle on a price, they may be forced to pay an excise tax of up to 95% of a medication’s U.S. sales or pull all their drug products from the Medicare and Medicaid markets.

After the initial round of talks, CMS will negotiate prices for another 15 drugs that will go into effect in 2027 and an additional 15 that will take effect in 2028. The number then rises to 20 negotiated medications a year starting in 2029.

For the first two years of the program, CMS said it will only select Medicare Part D drugs. More specialized drugs covered by Medicare Part B, which are typically administered by doctors, will be added in 2028, according to the agency.

Since CMS announced the inaugural round of drugs selected for talks, Debbie Hart, president and CEO of BioNJ, the state’s life sciences trade association, said “the unfolding of this process has proven to be less straightforward than anticipated.”

“The selection of therapeutics for the initial round of price-setting revealed an element of unpredictability in the process. Additionally, CMS introduced ‘listening sessions’ for each selected therapeutic, aiming to gather input from representatives spanning the health care spectrum. Unfortunately, feedback from patient advocacy groups indicates that the incorporation of patients’ voices into the ultimate decisions has been insufficient,” she said.

“Moreover, a lack of clarity surrounds how patient input is factored into decision-making. This uncertainty about which therapeutics will be subject to IRA pricing provisions, coupled with ambiguity in the decision-making process, has already begun to impact development across the health care ecosystem. It is our hope that policymakers will address the concerns voiced by patient advocacy groups and the broader ecosystem as we move forward,” Hart stated.

She went on to say, “We anticipate that the observed early trends across the landscape, which were anticipated by the life sciences sector before the IRA’s passage, will persist. Securing investment in the life sciences, particularly for small molecule therapeutics, is becoming more challenging. The lack of transparency in determining which therapeutics will be subject to IRA pricing provisions may continue to hinder the sector’s capacity to innovate. Authentic and transparent incorporation of patient voices into decision-making processes is crucial. While the life sciences ecosystem is resilient, we fear that, unless fundamental issues in the IRA are addressed, it will take additional time for patients to receive the treatments they depend on, if ever.”

Hart also said she has deep concerns that the Inflation Reduction Act disincentivizes innovation.

A June 2023 analysis by health care economics consultancy Vital Transformation estimated that 37 drugs currently available likely would not have come to market if the IRA policies had been in place over the past decade. It also said that because of the IRA, as many as 139 therapies may not be developed and thus will not reach patients over the next decade.

Hart called the findings “alarming” and said it is hard to believe that “these were the intended outcomes” of the legislation.

“For example, the law introduces a discrepancy in the consideration of small versus large molecules (biologics) by setting up a dichotomy wherein the patent life of small molecules is reduced to nine years versus the 13-year timeframe that large molecules receive. This disincentivizes investment in therapeutic development in small molecule programs and will result in therapies and cures not getting to patients,” she said.

“In response, the sector is adjusting its development strategies, emphasizing large molecules to navigate this disparity. In what universe does that make sense? A proposed solution to address this issue would be to ensure equal treatment for both small and large molecules, granting the same 13-year timeframe that large molecules currently receive under the IRA,” Hart explained. “Furthermore, the bill introduces a penalty wherein companies that have an approved drug for one rare disease are disincentivized from bringing that product forward for additional conditions.”

Recognizing this unintended consequence in the law, Hart said her organization is appreciative of a recently introduced bill that seeks to protect innovation for Americans battling rare diseases.

Under the Optimizing Research Progress Hope and New Cures Act, known as the OPRHAN Cures Act, the orphan drug status of medications that treat one or more rare diseases would be exempt from the Medicare drug price negotiation outlined in the IRA.

“We extend our gratitude to Representative Josh Gottheimer, a member of the New Jersey delegation, for being among the initial cosponsors of this important bill and are hopeful that this will make its way into law,” Harts said.

When it comes to alternatives for cutting drug prices, Hart commended “the increased attention that both congressional bodies and regulatory agencies, particularly the Federal Trade Commission, have devoted to scrutinizing the business practices of pharmacy benefit managers (PBMs).”

“The notoriety of PBMs for exerting substantial influence on health care expenditure is underscored by the fact that three PBMs, each under the ownership of the nation’s largest insurance companies, collectively oversee approximately 80% of prescribed medications in the United States. This prevailing landscape presents a significant opportunity to mitigate costs for patients. We eagerly anticipate substantive progress in addressing the underlying drivers of health care expenses, fostering a positive trajectory for cost reduction,” she went on to say.

Continuing legal battles

Several New Jersey pharma giants – including Johnson & Johnson in New Brunswick, Novo Nordisk in Plainsboro, Merck & Co. in Rahway, Novartis Pharmaceuticals in East Hanover and Bristol Myers Squibb in Lawrenceville – are among the entities that have taken legal action over the drug pricing requirements.

While the cases vary in detail, each allege that the government is overreaching in its authority and mostly hinge on whether the program is constitutional under the First and Fifth amendments. They also say allowing Medicare to negotiate prices would lead to lower profits, causing them to reduce spending in research and development.

Jesse Dresser, a partner at Pine Brook-based health care law firm Frier Levitt, told NJBIZ, “The complaints raise claims of violations of the Fifth Amendment’s prohibition on government ‘takings,’ violations of the First Amendment by ‘compelling’ drugmakers to endorse speech they disagree with, violations of the Eighth Amendment’s prohibition on excessive fines, violations of due process requirement, and violations of the separation of powers by Congress delegating legislative authority to an executive agency.”

“The suits take a broad approach, raising a variety of constitutional and legal arguments, in addition to substantial policy arguments. The cases have been brought in varied jurisdictions across the country (including four in New Jersey), with one potential goal of seeking a ‘circuit split’ that would result in a faster review by the Supreme Court,” said Dresser, who also heads the firm’s pharmacy practice group.

“In my opinion, these cases come down to how the courts view the government’s position that drugmakers’ participation in Medicare is voluntary. Unlike with the Affordable Care Act, pharmaceutical companies have the option to not have their products covered for Medicare beneficiaries — albeit at a huge hit to their revenues,” he explained.

“Government programs (including Medicare and Medicaid) have long imposed various conditions for participation on drugmakers to have their products covered, such as the Medicaid Drug Rebate Program or the 340B program,” Dresser said. “The pharmaceutical companies’ ability to be successful in any component of these suits will, in my opinion, come down to their ability to convince courts of their legal ‘right’ to participate in the Medicare program.”

When asked to comment last fall on whether Bristol Myers Squibb planned to negotiate, a spokesperson for the company told NJBIZ the pharma has “no choice other than to sign the ‘agreement’” and that if it didn’t “we’d be required to pay impossibly high penalties unless we withdraw all of our medicines from Medicare and Medicaid,” an action the company “would never do” to patients.

Novartis said it believed “the unconstitutional price-setting provisions in the Inflation Reduction Act (IRA) will limit the pharmaceutical industry’s ability to discover and develop new life-saving and meaningful medicines for the people who need them most.”

The company also maintains that “more comprehensive changes are required to ensure the IRA’s drug price-setting provisions do not result in worse access for patients; that the law is implemented in the most transparent and patient-centric manner possible; that the process allows for meaningful stakeholder input; and that ongoing innovation is valued equally for small molecules and biologics,” the Novartis spokesperson added.

Merck said that while it does not believe “price setting is the right approach for continuing to advance global health on behalf of millions in need,” and that the provisions “are bad policy that will stifle the U.S. biopharmaceutical sector’s research and development and have potentially devastating consequences for the millions of patients who need new therapeutic options,” the company “remains committed to working with the U.S. government to enable patient-focused innovation, value and access.”

Pharmaceutical Research and Manufacturers of America (PhRMA) and the U.S. Chamber of Commerce, which both represent a number of other biotech and pharmaceutical companies, have also taken legal action over the drug pricing requirements. PhRMA Chief Executive Officer Stephen Ubl has said the organization believes “politics should not dictate which treatments and cures are worth developing and who should get access to them.”

“The cancer moonshot will not succeed if this administration continues to dismantle the innovation rocket we need to get there. The harm will spread beyond cancer and impact people with rare diseases, mental health illnesses and other terrible diseases,” he said. “American patients deserve better. We will continue to fight for solutions that lower costs for patients at the pharmacy counter, address abusive practices by insurers and PBMs and mitigate the harm this law may have for future generations.”

Altogether, the administration faces 10 lawsuits over the drug pricing program. All the drugmakers and trade groups have asked for summary judgement in their cases, arguing the negotiations are unconstitutional and must be struck down. Legal experts believe there could be new lawsuits or amendments to existing litigation coming, making it unlikely cases will be resolved this year.

Only one of the six courts hearing the cases – the U.S. District Court for the Southern District of Ohio – has weighed in on the merits of the legal claims.

In litigation brought by the U.S. Chamber of Commerce that is still ongoing, the court declined to issue a preliminary injunction to block price talks, ruling in September 2023 that drugmakers participate in Medicare voluntarily and that the plaintiff will be hard-pressed in proving a due process violation.