Five points on CMS's first ten picks for price negotiations

What the White House’s initial list of drugs to be reviewed under the Inflation Reduction Act tells us about how the law could impact biopharma going forward

With the naming of the first 10 drugs selected for price negotiations, the Inflation Reduction Act has moved into a new phase that promises to reshape pharmaceutical companies and other organizations. The first 10 Medicare Part D drugs chosen for price negotiation by the Centers for Medicare & Medicaid Service treat a wide swath of conditions impacting seniors. With Part B drugs out of the equation, drugs that treat chronic conditions dominate the first batch. CMS’s picks give a glimpse into how it will approach negotiations going forward and which therapy areas it will target for future negotiations. The initial list, which takes effect in 2026, has the potential to roil formularies since it includes a mix of high-volume, preferred brands and a group of high-cost specialty drugs for autoimmune conditions (psoriasis) and cancer.

Below are five key takeaways and implications for industry:

Who made the list

Drugs up for the first negotiations only have a few common ties, tending either to be expensive or prescribed in large volumes among the Medicare population, but not both. With monthly wholesale acquisition costs below $600, volume drove type 2 diabetic drugs Jardiance® and JANUVIA® onto the list. With 27.5% of fee-for-service beneficiaries having a type 2 diabetes diagnosis in 2019, it is among the most widespread chronic conditions in the over-65 population. While more expensive than type 2 diabetes drugs, blood thinners follow a similar pattern of high prescription volumes. Despite much lower volumes, autoimmune drugs Stelara and Enbrel likely joined the list due to higher wholesale acquisition costs (per Clarivate 2022 Part D claims data).  Humira, the long-running blockbuster autoimmune drug, was not eligible for negotiations since it will have nine biosimilars on the market by the end of 2023. The dearth of cancer drugs (only blood cancer drug Imbruvica made this first list) stems from CMS only pursuing negotiations for Part D drugs in 2026 and 2027, then expanding to Part B drugs in 2028.  Part D cannot cover drugs covered under Part A or Part B, forcing them to be addressed separately.

How negotiations might impact cost-sharing

Medicare beneficiaries with high-cost specialty drugs on the negotiation list are more likely to realize savings than those taking highly prescribed maintenance drugs for common chronic conditions. IMBRUVICA® and STELARA® are universally covered on the specialty tier, with Enbrel® on the specialty tier for all but a handful of plans (Clarivate 2023 Part D formulary data). The biggest impacts are likely to be felt by patients with PDPs that use coinsurance, which most plans do for specialty drugs. Here CMS could realize the biggest impact, since a lower negotiated price should translate to lower coinsurance. Insurers could respond by raising coinsurance rates, but the number of beneficiaries taking those drugs is relatively small. Impact for patients taking the diabetes drugs and blood thinners might be less noticeable since these drugs tend to receive coverage as preferred brand tiers with copays. Both JANUVIA® and Jardiance® are covered as Tier 3 preferred brands on more than 70% of formularies. ELIQUIS® and XARELTO® also tend to receive favorable formulary placement (per Clarivate 2023 Part D formulary data). In both cases, a shift in formulary placement could lower prescription volumes and reduce member utilization. Moving autoimmune drugs to a nonpreferred specialty tier could push higher prescription from the growing pool of biosimilars in that therapeutic class, which already cost less than Enbrel® or STELARA®.

What the addition of Part B may bring

With the expansion of price negotiations to include Part B drugs in 2028, Medicare reimbursement may become challenging for additional manufacturers. Unlike in Part D, Part B drugs are physician administered and there is less certainty regarding which drugs will be tapped for negotiations (i.e., exclusions exist for orphan drug designation and biosimilar competition). Nonetheless, Clarivate expects the initial list to include oncology treatments KEYTRUDA® and OPDIVO®. These treatments are approved for a number of different cancer indications so the impact of their negotiated prices may have a knock-on effect throughout the industry. Even manufacturers of drugs not likely to be selected for Part B may see their rivals’ inclusion in the negotiation list serving as a new pricing benchmark in the eyes of commercial payers.

How the IRA could affect treatment choice

While price negotiations are intended to lower Medicare costs, they also present a challenge to physician practice economics. Under buy and bill (B&B) in Medicare Part B, physician practices profit from reimbursement (historically Average Sales Price + 6% before sequestration) as well as rebates and discounts negotiated with manufacturers for hitting volume levels. If negotiations result in a lower Maximum Final Fair Price (MFP), buy and bill reimbursement would also decline unless the reimbursement rate is increased. Providers therefore could find their buy and bill operations are in the red. Expect some provider practices to research using alternative treatments not subject to price negotiations for their new patients, assuming comparable efficacy, safety, and tolerability (e.g., starting new lung cancer patients on LIBTAYO® or melanoma patients on Opdualag™ instead of KEYTRUDA®).

The IRA could also boost provider consolidation

The impact on buy and bill may have an outsized negative effect on independent practices. B&B allows larger practices to negotiate for better reimbursement rates from commercial payers and larger manufacturer discounts/rebates. Smaller practices are therefore at a disadvantage when average sales price (ASP) is recalculated –- they are too small for bigger rebates but still face a lowered ASP, reducing profits. If independent practices cannot make up the shortfall from buy and bill, expect more to consider selling out to larger competitors or investment groups and further fuel consolidation.


With implementation of the IRA moving forward (assuming no complications due to industry lawsuits), the initial impacts are just now being felt with the first 10 Part D drugs for negotiation being named. However, the ultimate impact of this program should have far-reaching effects for pharmaceutical companies and the broader healthcare system that bear monitoring as the IRA’s multi-year implementation schedule unfolds.


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This post was written by Roy Moore, Senior Healthcare Research and Data Analyst, and Bill Melville, Lead Healthcare Research and Data Analyst