Drug manufacturers are skimming off high profits in North America so that they can charge lower prices in Europe. The USA is now putting an end to this practice. Novartis is one of the first victims of the new price controls.
During an appearance in the state of Maryland, Joe Biden presents the ten drugs whose prices the government has negotiated down.
Until now, pharmaceutical companies in the USA have lived in the best of all worlds when it comes to prices. Because the American authorities were prohibited from negotiating prices with manufacturers, unlike in almost all other countries, the latter were able to make large profits from patented drugs.
Politicians from both camps and patient organizations have repeatedly complained that the USA is subsidizing medicines in the rest of the world. Prices there are usually significantly lower than in North America
Extensive discounts
Before he was elected president in 2020, Joe Biden promised American voters that he would do something about what he also believes to be excessive US drug prices. And he kept his word.
The eagerly awaited first list of drugs whose prices have been negotiated down by Biden’s administration shows that pharmaceutical companies will soon have to accept extensive price reductions.
The list of the ten affected drugs was first published a year ago. After that, price negotiations began in several rounds between the government and manufacturers. As the US Department of Health announced on Thursday, prices will fall by 40 to 80 percent from 2026 compared to last year’s levels (based on list prices).
Well-known blood thinners are also included
These are frequently prescribed drugs that cause particularly high costs for the state health insurer Medicare. The US government is already boasting that Medicare could have saved a total of $6 billion by 2023 if the prices now set had been in place back then.
Medicare benefits are available to all U.S. residents age 65 and older. The ten drugs in question are used to treat common conditions such as diabetes, cancer and autoimmune diseases such as rheumatoid arthritis.
Two well-known blood thinners, Eliquis and Xarelto, as well as a drug to prevent heart attacks, Entresto, are also on the list.
According to the U.S. Department of Health and Human Services, approximately 9 million Medicare beneficiaries take at least one of the drugs on the list. Although Medicare covers most of the treatment, patients are required to pay a deductible. Authorities estimate that the price cuts will reduce total patient expenses by $1.5 billion in 2026.
Defeat for the industry despite influential lobby
The pharmaceutical industry is considered to be better connected in government circles than almost any other industry. Nevertheless, it has not succeeded in preventing the authorities from authorizing price negotiations.
The corresponding provision was included in the Inflation Reduction Act (IRA) along with a large number of initiatives aimed primarily at stimulating the economy after the Covid crisis with the help of multi-billion dollar spending programs. Biden signed the legislative package into law after it was passed by Congress in August 2022.
Pharmaceutical industry organizations and individual companies attempted at various legal levels to reverse the introduction of price negotiations.
They argued that, contrary to what the law states, participation was not voluntary for drug manufacturers because they could not bypass the insurer Medicare due to its large number of patients in the US market. In addition, the legal reform violated their right to freedom of expression.
However, all lawsuits filed by the pharmaceutical industry have so far been unsuccessful.
Novartis chooses the path of the lesser evil
Like all major pharmaceutical companies, Novartis saw no other choice than to participate in the price negotiations. Otherwise, the only options available would have been untenable, such as “catastrophic fines” or the removal of all products from the Medicare list. When asked, Novartis did not want to say how high the possible fines would have been.
According to the Basel-based company, the newly introduced mechanism for determining prices lacks transparency. It also does not reflect the true value of innovative medicines and will limit Novartis’ ability to develop new products for people who need them most.
Since the IRA came into force, the pharmaceutical industry has repeatedly made such statements – which are not without pathos. However, it remains to be seen to what extent the price reductions will affect the innovative power of drug manufacturers.
For example, companies could try to compensate for the loss of revenue by cutting costs in their administration and sales apparatus in order to avoid having to cut back on research and development.
Entresto still significantly more expensive than in Germany
Regardless of this, the US prices of the drugs in question remain high compared to other countries. For example, a month’s supply of Entresto costs 138 euros in Germany for self-payers, which means it will continue to be only about half as expensive as in America.
The price reductions also do not apply to private health insurers in the USA. However, the industry suspects that these insurers will now have a strong incentive to insist on lower prices.
The US government will select up to 15 additional drugs to be included in the next round of pricing by early February. After that, more drugs will be added each year.
Although the industry can no longer determine the prices for a growing number of drugs in the USA without government interference, most market observers believe the consequences for drug manufacturers are manageable.
This is because the IRA’s provisions only target products that have been available for some time, many of which are on the verge of losing patent protection anyway.
This will be the case for Entresto, for example, from the middle of next year. This means that generics are also likely to erode sales of this drug.
Entresto has been Novartis’ top-selling product in recent years, bringing the company nearly $4 billion in revenue in the first half of this year alone.