The Biden Administration’s Negotiations With Pharmaceutical Companies

By Isabel Anthony

The Biden administration has conducted the government’s first ever negotiations with pharmaceutical companies on the cost of life saving drugs.  They have been able to negotiate prices down by nearly 80%.[1]  The drugs at the center of negotiations are ones that people are prescribed for years at a time in order to manage illnesses such as heart disease, Crohn’s disease, and more.[2]  In order to conduct these negotiations, the Biden administration used march-in rights built into the Bayh-Dole Act.[3]

Under the Bayh-Dole Act, the government can “march in” on patents funded by taxpayer money to require the holder of the patent to license their patent to other applicants, thus driving down costs.[4]  This is the first time the federal government has utilized march-in rights, although the Bayh-Dole Act became law in 1980.[5]  In August 2022, President Biden signed the Inflation Reduction Act of 2022 into law, which gave lawmakers the ability, along with the march-in rights granted by the Bayh-Dole Act, to directly negotiate the prices of “single source drugs without generic or biosimilar competition.”[6] 

These negotiations began in early 2024, although drugmakers like Bristol Myers Squibb, Merck, and Johnson & Johnson, filed multiple lawsuits in federal courts to put an end to these negotiation efforts.[7]  Merck argued the Inflammation Reduction Act was unconstitutional under the First Amendment because it required drugmakers to agree with the set “fair market prices.”[8]  Merck and the U.S. Chamber of Commerce both argue that allowing Medicare to negotiate prices “violates multiple protections afforded by the Constitution” and has the potential to harm the development of new drugs.[9]  The U.S. Chamber of Commerce notably has drug company executives as board members.[10]

Although the Biden Administration purportedly did not enter the negotiations with an end-price in mind, the measures threatened against these drug-producing companies were harsh if the companies did not comply.  If these drug manufacturing companies do not adhere to the negotiation process, they “will have to pay an excise tax of up to 95% of the medications’... sales” in the United States or risk having their drugs pulled from the Medicare and Medicaid markets.[11]  Thus, although the Biden administration framed these new drug prices as the result of negotiations, the companies had no choice but to comply.[12]  However, the Centers for Medicare and Medicaid made their final offers in late July, and it seems as though the drug companies, despite their reluctance, have gotten on board with these changes.[13]

Despite the arguments asserted by the drug manufacturers about the unconstitutionality of this new negotiation tactic, the government has been successful up to this point.[14]  Ten of the leading drugs for long-term diseases have been negotiated down substantially, and these new prices are supposed to go into effect in the beginning of 2026.[15]  The government is planning to select fifteen more drugs for negotiations in 2027 and 2028.[16]  Merck and the other drug-making companies have been unsuccessful in their opposition to the federal government’s negotiation efforts thus far.[17]

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[1] Jeff Mason, Patrick Wingrove & Trevor Hunnicutt, Biden, Harris hail Medicare drug price cuts that will save billions, Reuters (Aug. 16, 2024), https://www.reuters.com/business/healthcare-pharmaceuticals/us-expects-6-bln-savings-first-medicare-drug-price-negotiations-2024-08-15/ [https://perma.cc/QT64-9PK3].

[2] Daniel G. Aaron & J. Jonas Anderson, The Biden Administration’s Push to Lower Drug Prices Through March-In Rights, 332 JAMA 449, 449–50 (2024).

[3] Id.

[4] FTC Submits Comment on March-In Rights to Promote Efforts to Lower Drug Prices, F.T.C. (Feb. 6, 2024), https://www.ftc.gov/news-events/news/press-releases/2024/02/ftc-submits-comment-march-rights-promote-efforts-lower-drug-prices [https://perma.cc/8LZN-S29U].

[5] Aaron and Anderson, supra note 2.

[6] Medicare Drug Price Negotiations Program: Negotiated Prices for Initial Price Applicability Year 2026, CMS Newsroom (Aug. 14, 2024), https://www.cms.gov/newsroom/fact-sheets/medicare-drug-price-negotiation-program-negotiated-prices-initial-price-applicability-year-2026#:~:text=For%20the%20first%20time%%2C%20the,without%20generic%20%or%20biosimilar%20competition [https://perma.cc/YEK4-A4TJ].

[7] Tammi Luhby, Medicare drug price negotiations start after Biden administration makes initial offers, CNN (Feb. 1, 2024), http://cnn.com/2024/02/01/politics/medicare-drug-price-negotiations-initial-offers/index.html [https://perma.cc/GB3E-EBUY]; Tammi Luhby, Drugmakers want to stop Medicare from negotiating prices. Here’s what you should know, CNN (June 16, 2023), https://www.cnn.com/2023/06/15/politics/medicare-drug-price-negotiations-lawsuits/index.html [https://perma.cc/2NEF-WLL7].

[8] Katie Lobosco, Merck sues US government over new Medicare drug price negotiation, CNN (June 6, 2023), https://www.cnn.com/2023/06/06/politics/merck-lawsuit-medicare-drug-price-negotiation/index.html [https://perma.cc/6PPS-XR6D].

[9] Luhby, Medicare drug price negotiations start after Biden administration makes initial offers, supra note 7.

[10] Id.

[11] Id.

[12] Id.

[13] Tammi Luhby, Drugmakers want to stop Medicare from negotiating prices. Here’s what you should know, supra note 7.

[14] Katie Lobosco, Merck sues US government over new Medicare drug price negotiation program, CNN (June 6, 2023), https://www.cnn.com/2023/06/06/politics/merck-lawsuit-medicare-drug-price-negotiation/index.html [https://perma.cc/6PPS-XR6D].

[15] FTC Submits Comment on March-In Rights to Promote Efforts to Lower Drug Prices, F.T.C. (Feb. 6, 2024), https://www.ftc.gov/news-events/news/press-releases/2024/02/ftc-submits-comment-march-rights-promote-efforts-lower-drug-prices [https://perma.cc/8LZN-S29U].

[16] Lobosco, supra note 14.

[17] Id.