Learn About Medicare Drug Negotiations and Programs

Understanding the Medicare Drug Price Negotiation Process

The Centers for Medicare & Medicaid Services (CMS) began directly negotiating drug prices with pharmaceutical manufacturers starting in 2024 under provisions of the Inflation Reduction Act, passed in August 2022. This represents a significant shift in how Medicare handles prescription drug costs, as the federal government had previously been prohibited from negotiating prices directly with drug companies. The negotiation process involves multiple stages, each with specific timelines and participants.

The negotiation begins when CMS identifies drugs that meet certain criteria, primarily those with high spending and no generic or biosimilar alternatives available. CMS then invites selected drug manufacturers to participate in price discussions. These manufacturers are not required to negotiate, but if they decline to participate, their drugs may face a substantial penalty tax—currently 95 percent of revenues from those drugs sold to Medicare. This financial incentive creates strong motivation for manufacturers to engage in discussions.

During negotiations, both CMS and the manufacturer present data and arguments about pricing. CMS uses information about the drug's clinical value, international pricing comparisons, and patient impact. Manufacturers provide their own research about development costs, market competition, and the drug's benefits. These discussions typically occur over several months, with multiple rounds of offers and counteroffers. The goal is to reach an agreed-upon price that reflects the drug's value while being more affordable for Medicare beneficiaries.

The negotiation framework includes specific reference points. CMS establishes an opening position based on the average manufacturer price and the annual percentage increase in spending on that drug. Manufacturers then submit their counteroffer, and negotiations proceed from there. Both parties may adjust their positions based on evidence presented. Unlike typical commercial negotiations, there are statutory limits—negotiated prices cannot fall below certain reference points, which helps protect manufacturers while still achieving savings.

Practical takeaway: The negotiation process is structured and evidence-based, involving detailed discussions between government representatives and pharmaceutical companies. Understanding that these are formal processes with defined rules helps explain why negotiations take months to complete and why certain drugs may or may not be included in agreements.

Which Medications Qualify for Price Negotiations

The medications subject to Medicare drug price negotiations are not random selections. CMS uses specific criteria to determine which drugs enter the negotiation process. The primary requirement is that a drug must be covered under Medicare Part B or Part D and must have generated substantial spending in the Medicare program. Additionally, the drug must not have a generic or biosimilar version available, as drugs with generic alternatives already experience price competition.

In the first year of negotiations (2023-2024), CMS selected ten drugs for price negotiation discussions. These included well-known medications such as Eliquis (apixaban), used for blood clots; Janssen's Imbruvica, prescribed for certain cancers; Merck's Keytruda, an immunotherapy drug; and Novo Nordisk's Ozempic, used for type 2 diabetes and increasingly prescribed off-label for weight management. The list also included Boehringer Ingelheim's Jardiance for diabetes, Amgen's Prolia for osteoporosis, Bristol Myers Squibb's Revlimid for multiple myeloma, Roche's Ocrevus for multiple sclerosis, AbbVie's Rinvoq for rheumatoid arthritis, and Vertex's Kalydeco for cystic fibrosis. These drugs represent medications used to treat serious, chronic conditions where Medicare spending is substantial.

The list of drugs eligible for negotiation grows over time. In 2025, CMS identified additional medications for negotiation, expanding the program's scope. The criteria for inclusion reflect several factors: total Medicare spending on the drug in prior years, the percentage increase in spending over time, and whether the drug represents a significant cost burden for beneficiaries. Drugs with rapid spending growth are more likely to be selected than those with stable spending patterns.

It's important to note that not all drugs negotiate successfully or at the same pace. Some manufacturers may decline negotiation, which triggers the penalty tax mentioned earlier. Others may negotiate and reach agreement relatively quickly, while some discussions may take longer. The drugs selected for negotiation in any given year depend on spending data from prior years, so there is typically a lag between when a drug becomes expensive and when it might be included in negotiations.

Drugs covered under Medicare Part D (prescription drug coverage) are treated differently from those under Part B (administered drugs like infusions or injections). This distinction affects when prices take effect and how beneficiaries encounter the negotiated prices. Part D negotiated prices typically take effect on January 1st of the year following the agreement, while Part B pricing may have different implementation timelines.

Practical takeaway: The medications included in price negotiations are selected based on their cost and spending patterns within Medicare, not on whether they are "good" or "bad" drugs. New medications and expensive treatments are more likely to be included than older drugs with established pricing, meaning the list changes regularly as new drugs enter the market and existing drugs' spending patterns shift.

How Negotiated Prices Affect Your Out-of-Pocket Costs

When Medicare negotiates lower prices with drug manufacturers, those savings can translate into reduced costs for people with Medicare, but the amount varies based on individual circumstances and coverage type. The relationship between negotiated prices and out-of-pocket costs is not straightforward—a lower price at the manufacturer level does not automatically mean a lower copay at the pharmacy counter.

For Medicare Part D beneficiaries (those with standalone prescription drug plans or Medicare Advantage plans with drug coverage), negotiated prices affect the amount plans pay to pharmacies. When a plan's cost for a drug decreases, plans may pass some or all of these savings to beneficiaries through lower copayments or coinsurance. However, plans have some flexibility in how they allocate these savings. A plan might lower the copay for a negotiated drug, keep the copay the same but improve other plan features, or allocate savings across multiple drugs rather than to a single medication.

For Medicare Part B drugs—those administered in hospitals, doctors' offices, or clinics—the situation is different. Patients typically pay 20 percent of the Medicare-approved amount after meeting their deductible, regardless of whether the price has been negotiated. If a drug's negotiated price is lower, the 20 percent coinsurance amount would also be lower. Unlike Part D, where plans set their own cost-sharing levels, Part B coinsurance is standardized, so beneficiaries directly benefit from any price reductions achieved through negotiation.

The actual savings a beneficiary experiences depends on several factors. First, the size of the negotiated price reduction matters—drugs with larger price cuts will produce larger savings. Second, the structure of a person's specific plan affects how savings are distributed. Third, whether a beneficiary is in the catastrophic coverage phase of their plan (after spending a certain amount out-of-pocket) changes how they benefit from price reductions. Someone in catastrophic coverage typically pays only 5 percent coinsurance, so price reductions at that stage produce modest direct savings to the individual, though Medicare itself saves significantly.

Additionally, the deductible phase affects how negotiated prices help. If a beneficiary has not met their annual deductible, they may pay the full negotiated price (under some plan types) or negotiated prices may apply only after the deductible is met. Once the deductible is satisfied, lower negotiated prices mean lower copayments or coinsurance amounts for the remainder of the year.

Aggregate savings across all Medicare beneficiaries are substantial. In 2024, the first year negotiated prices took effect, Medicare and beneficiaries collectively saved hundreds of millions of dollars. However, individual savings vary widely—someone taking one of the ten drugs that negotiated prices in the first year may see significant savings, while someone taking other expensive drugs may not experience immediate reductions.

Practical takeaway: Negotiated drug prices generally reduce what Medicare and its beneficiaries pay overall, but the out-of-pocket benefit to any individual depends on their specific plan, the drug they take, and where they are in their plan's coverage phases. Checking with a pharmacy about a specific drug's current price provides the most accurate picture of personal costs.

The Timeline of Negotiations and When Prices Take Effect

Medicare drug price negotiations follow a defined annual timeline with specific milestones. Understanding this schedule helps beneficiaries and healthcare providers know when to expect information about newly negotiated prices. The timeline typically begins with data review and drug selection in the spring, followed by formal negotiations during summer and