WSJ: Why Drug Prices for Some Big Medicines Will Remain High for a Longer Time

Medicare gained the power to negotiate prices on a handful of prescription drugs each year under the Inflation Reduction Act in 2022. The Big Beautiful Bill now puts new restrictions on when and which types of drugs can be negotiated. 

The drug industry had long been pushing to include the provisions in the new law that would affect those negotiations. Dozens of companies, including Merck and AstraZeneca, as well as industry groups such as the Pharmaceutical Research and Manufacturers of America and the Biotechnology Innovation Organization, lobbied lawmakers on the provisions in the first half of the year, according to data from OpenSecrets.org, a nonprofit that tracks lobbying and campaign finance.

The exempting or delay of drugs from negotiations will cost Medicare at least $5 billion in missed savings over 10 years, according to estimates by the Congressional Budget Office. The true tally of the new provisions could be far higher because CBO missed certain drugs such as Keytruda. The office plans to re-evaluate its analysis.

For drugs like Keytruda that are administered in the doctor’s office, Medicare patients will be on the hook for 20% of the drug’s higher, nonnegotiated price unless they have supplemental insurance to pay for it.

The price negotiation law of 2022, which was passed under former President Joe Biden, includes a complex set of rules around which drugs can be negotiated in any given year. Pills are eligible for negotiation nine years after they receive Food and Drug Administration approval, and so-called biologic drugs, such as Keytruda, can be negotiated 13 years after their first approval. The law exempted from negotiation drugs approved to treat a single rare—or “orphan”—disease, which affect 200,000 people or fewer in the U.S.

The Big Beautiful Bill widens the exemption. 

For products first approved as orphan disease drugs, but which later were approved for wider use, the stopwatch on when they can be negotiated now starts at the time of the later approval. 

Keytruda, for example, was first approved in 2014 as an orphan drug for certain types of advanced melanoma, and received a non-orphan approval the following year for lung cancer. Under the Big Beautiful Bill, Medicare price negotiation for Keytruda will be delayed at least one year because of that later, bigger approval—from 2026 to 2027.

The other provision exempts entirely drugs that are approved for several orphan diseases but not for more common conditions. The exemption applies to J&J’s Darzalex, a multiple myeloma treatment, estimated to have had $5.6 billion in gross Medicare spending last year. J&J declined to comment.

It is hard to predict how big a discount Medicare would have negotiated, but it would likely have saved Medicare billions of dollars over one year in the case of Keytruda, according to estimates by Sean D. Sullivan, a health economist at the University of Washington’s School of Pharmacy. Sullivan estimates that Medicare gross spending on Keytruda was $13.5 billion in 2024.

“The negotiation program is only one part of a comprehensive agenda to increase transparency, promote competition, and make drugs affordable for seniors,” said a spokeswoman for the Centers for Medicare and Medicaid Services. “Additional reforms are already in motion to close loopholes and ensure that even the costliest drugs, regardless of indication, can be subject to rigorous scrutiny and appropriate pricing discipline.”

Merck was supportive of the legislation, a spokesman said in an email. “We strongly believe this change will benefit patients, particularly those with difficult to treat rare diseases,” he said.

Since the 1980s, Congress has created incentives for companies to develop treatments for rare diseases such as cystic fibrosis, which they might not otherwise develop because of the small market size.

In recent decades, it has become common for companies to receive FDA approval under the orphan drug designation for subsets of cancer caused by specific genetic mutations, but then to later gain approval for non-orphan indications. 

Daina Graybosch, a pharma analyst with Leerink Partners, said the provisions are positive because they encourage companies to pursue approvals for small patient populations first, which is cheaper, faster and less risky than bigger populations. Under the old rules, companies were less likely to test their drugs in narrow disease areas, making it less likely that doctors would prescribe them or insurers pay for them.

Democrats and health-policy researchers are critical of the law’s changes.

“This is a remarkable evolution in what we conceptualize as an orphan drug,” said Anna Kaltenboeck, a health economist who helped draft the Medicare price-negotiation provisions in the IRA as a Senate staffer. “This is a big win for the pharma companies, not necessarily for patients.”

Sen. Ron Wyden (D., Ore.) called the law change a “Big Pharma Bailout” paid for by Medicaid cuts in the Big Beautiful Bill, in a letter to Trump sent on Friday.

Other drugs that will no longer be eligible for negotiation next year include Bristol-Myers Squibb’s cancer drugs Opdivo and Yervoy, which are estimated to have cost Medicare $4.7 billion and $993 million, respectively, in 2024, according to the University of Washington’s Sullivan.

Bristol didn’t respond to requests for comment. 

AbbVie’s blood-cancer pill Venclexta, estimated to have had $814 million in gross Medicare spending in 2024, will also be excluded under the new rules. 

“With this change, we would not expect Venclexta to be negotiated,” AbbVie Chief Executive Rob Michael told analysts on the company’s second-quarter earnings call on Thursday. “That’s an example of a good policy change where innovation is being rewarded and not penalized.”

Corrections & Amplifications
Darzalex is used to treat the blood cancer multiple myeloma. An earlier version of this article incorrectly said it treats melanoma. (Corrected on Aug. 4)