Medicare Drug Price Negotiation

For the first half-century of Medicare's existence, the federal government was legally prohibited from negotiating the prices it paid for prescription drugs — leaving Medicare paying list prices set by pharmaceutical manufacturers with no countervailing power. The Inflation Reduction Act of 2022 ended that prohibition, authorizing Medicare to directly negotiate prices for certain high-cost drugs under 42 U.S.C. § 1320f. The program targets drugs without generic or biosimilar competition that have been on the market for 7+ years (small molecule drugs) or 11+ years (biologics) and account for high Medicare spending. The first 10 Part D drugs had negotiated prices take effect in 2026 — including Eliquis, Jardiance, and Xarelto, among the most widely prescribed drugs in Medicare. The program expands to 15 drugs in 2027, 15 more in 2028, and 20 drugs annually thereafter. The pharmaceutical industry challenged the program in multiple federal lawsuits arguing unconstitutional compelled speech and takings — courts have largely rejected those challenges. CBO estimated the initial 10-drug round would reduce federal drug spending by approximately $6 billion through 2031, with much larger savings projected as the program scales to hundreds of drugs over the following decade.

Current Law (2026)

The Inflation Reduction Act of 2022 authorized Medicare to negotiate prices for certain high-cost drugs for the first time, with negotiated prices taking effect in phases.

Parameter	Value
Drugs negotiated (first round, effective 2026)	10 Part D drugs
Drugs negotiated (second round, effective 2027)	15 Part D drugs
Drugs negotiated (third round, effective 2028)	15 Part B or Part D drugs
Ongoing (2029+)	20 drugs per year
Eligibility	Drugs without generic/biosimilar competition, on market 7+ years (small molecule) or 11+ years (biologic)

First 10 Negotiated Drugs (Effective 2026)

Eliquis (blood thinner)
Jardiance (diabetes/heart failure)
Xarelto (blood thinner)
Januvia (diabetes)
Farxiga (diabetes/heart failure/kidney)
Entresto (heart failure)
Enbrel (autoimmune)
Imbruvica (blood cancer)
Stelara (autoimmune)
Fiasp/NovoLog (insulin)

Legal Authority

42 U.S.C. § 1320f — Negotiation of drug prices (Maximum Fair Price program, added by IRA)
42 U.S.C. § 1395w-111 — PDP regions, plan approval, and bid submission (Part D plan structure underlying negotiation)
IRA Section 11001 — Part D redesign
IRA Section 11002 — Drug price negotiation program

How It Works

CMS selects drugs for negotiation based on total Medicare spending, lack of generic or biosimilar competition, and time since FDA approval. The negotiated result is a Maximum Fair Price (MFP) — a ceiling that Medicare cannot exceed when paying for the drug; Part D plans and pharmacies must honor the MFP for Medicare beneficiaries. The MFP itself is bounded by statute: it cannot exceed the lesser of (a) the non-federal average manufacturer price (non-FAMP), or (b) a discounted percentage of non-FAMP that decreases with the drug's age — 75% for drugs 7–11 years post-approval, 65% for 12–15 years, and 40% for drugs 16 or more years post-approval. This tiered ceiling gives older drugs with no generic competition the deepest discounts. The compliance mechanism is an excise tax — manufacturers who refuse to negotiate or comply with the MFP face a tax of up to 95% of U.S. drug sales for that product, or they may withdraw all their products from Medicare and Medicaid entirely. This "negotiate or exit" structure was upheld against constitutional challenge in 2024, with federal courts rejecting the argument that the excise tax constituted an unconstitutional compelled taking.

Separate from drug price negotiation, the Inflation Reduction Act's Part D redesign (effective 2025) capped Medicare beneficiary out-of-pocket drug costs at $2,000/year and eliminated the coverage gap (the "donut hole") that previously exposed beneficiaries to 25–100% cost-sharing on drug spending in the middle band. The $2,000 cap is indexed to drug cost growth in future years. An inflation rebate requirement applies to both Part B and Part D drugs regardless of whether they are selected for negotiation: manufacturers must pay Medicare rebates if a drug's price rises faster than the CPI-U inflation index. The rebates apply retroactively from a base year set in the IRA, and they cover both the Medicare-negotiated drug price separately. Together, negotiation, the OOP cap, and inflation rebates represent the most significant structural change to Medicare drug coverage since Part D was created in 2006.

How It Affects You

If you take one of the 10 negotiated drugs effective in 2026: Your cost-sharing drops automatically starting January 1, 2026 — no action required at the pharmacy. CMS negotiated significant reductions from prior list prices. As published examples: Eliquis (apixaban, blood thinner) — negotiated Maximum Fair Price approximately $231 for a 30-day supply vs. prior list price of ~$550, a ~58% reduction. Farxiga (SGLT2 inhibitor for diabetes, heart failure, CKD) — MFP approximately $178/30 days vs. ~$550 list. Jardiance — approximately $197/30 days vs. ~$550 list. Your actual out-of-pocket depends on your Part D plan's cost-sharing structure, but the IRA's separate $2,000 annual Part D out-of-pocket cap (also effective 2025+) further limits your total annual exposure. To verify: log in to Medicare Plan Finder at medicare.gov/plan-compare, select your plan, and search for your specific drug. The formulary will show the negotiated tier and your cost-sharing at each pharmacy type. If a negotiated drug is on a higher tier with higher cost-sharing, you can request a formulary exception or switch to a plan with better coverage during Special Enrollment or the next Annual Enrollment Period (October 15 – December 7).

If you take insulin under Medicare Part D: The IRA caps insulin copays at $35/month per insulin product for all Medicare Part D plans — this is a hard legal requirement, not an optional benefit. The cap has been in effect since January 1, 2023. If you're paying more than $35/month for a covered insulin, call your Part D plan's customer service number (on your insurance card) and tell them you should be paying the $35 IRA cap. If the plan refuses to correct it, file a complaint at medicare.gov/forms-help-and-resources/help-with-claim-problems/complaints or call 1-800-MEDICARE (1-800-633-4227).

If you're not yet on Medicare and pay high drug costs: The Medicare negotiated Maximum Fair Prices apply only to Medicare Part D (and Part B starting in round three effective 2028). Commercial insurers are not legally required to adopt these prices. For near-term alternatives if you're uninsured or underinsured: Mark Cuban's Cost Plus Drugs (costplusdrugs.com) sells generic medications at cost plus a 15% markup — often dramatically cheaper than pharmacy retail prices. GoodRx (goodrx.com) provides discount coupons usable at most pharmacies regardless of insurance. Manufacturer patient assistance programs — search "[drug name] patient assistance program" — often provide brand medications free or at very low cost for income-qualifying patients. NeedyMeds (needymeds.org) aggregates these programs.

If you're watching this policy area for investment or business reasons: Pharmaceutical companies mounted multiple constitutional challenges (First Amendment compelled speech, Fifth Amendment taking), and courts largely upheld the program through 2025. CMS is expanding the negotiated drug list: 15 drugs in 2027, 15 more in 2028, 20 per year thereafter — with the program eventually covering hundreds of drugs annually. The December 2025 CMS proposed rule establishing the GLOBE model (Global Benchmark for Efficient Drug Pricing) would benchmark U.S. Medicare Part B drug payments to an international reference price — a second, potentially more sweeping pricing mechanism layered on top of negotiation. The long-term question about pharmaceutical innovation investment is real: CBO estimated the IRA would reduce new drug approvals modestly over 30 years; manufacturers argue the impact is larger. Watch CMS's next drug selection announcements (typically in February-March) and litigation developments as the program scales.

Drug price negotiation is a centerpiece of federal healthcare spending reform, projected to save Medicare tens of billions over the next decade.

State Variations

Medicare drug pricing is federal. However:

State prescription drug programs: Several states have their own drug pricing laws, including prescription drug affordability boards (CO, MD, ME, MN, NH, OH, OR, WA) that can set upper payment limits on state-purchased drugs.
Medicaid: Already receives mandatory rebates and best-price guarantees, so Medicaid drug costs are generally lower than Medicare.

Implementing Regulations

42 CFR Part 423 — Medicare Part D voluntary prescription drug benefit program (plan requirements, formulary standards, coverage determinations, grievances, payment, low-income subsidies)
42 CFR Part 423 Subpart Z — Negotiated Maximum Fair Price for Selected Drugs (CMS implementation of the Inflation Reduction Act drug price negotiation: drug selection criteria, manufacturer participation, ceiling price calculations, pharmacy claims processing, civil monetary penalties for non-compliance)
42 CFR Part 428 — Medicare Prescription Drug Inflation Rebate Program and Negotiation Program (IRA drug price negotiation procedures, maximum fair prices, manufacturer agreements, compliance)

Pending Legislation (119th Congress)

S1587 — Fair Prescription Drug Prices for Americans Act (Sen. Hawley, R-MO) — Caps U.S. retail drug and biologic list prices to the average in six reference countries; requires annual price reporting; imposes steep per-unit penalties
S641 — Safe and Affordable Drugs from Canada Act (Sen. Klobuchar, D-MN) — Lets individuals import certain prescription drugs from certified Canadian pharmacies for personal use with safety checks and a 90-day limit
S2068 — End Prescription Drug Ads Now Act (Sen. Sanders, I-VT) — Bans manufacturers' direct-to-consumer prescription drug ads across all media
S2099 — Restore Prescription Drugs Discount Act (Sen. Paul, R-KY) — Repeals the Robinson-Patman Act to remove federal bans on certain price discrimination in the drug market
S1506 — Medicare for All Act (Sen. Sanders, I-VT) — Federal plan covering every U.S. resident with broad benefits, limited copays for drugs, and new global budgets
HR 6609 — Pharmacists Fight Back in Medicare and Medicaid Act: force PBMs to pass rebates to enrollees, set pharmacy payments based on NADAC plus 4% or $50, expand drug price transparency, add criminal penalties. Status: Introduced.
Legal challenges: Pharmaceutical companies have filed multiple lawsuits challenging the negotiation program's constitutionality.
Expansion proposals: Bills to accelerate the timeline, include more drugs per year, or extend negotiated prices to commercial insurance.
Repeal efforts: Some proposals would repeal the IRA drug pricing provisions entirely.

Recent Developments

GLOBE international reference pricing model proposed (December 2025): CMS proposed the Global Benchmark for Efficient Drug Pricing (GLOBE) model under Section 1115A — a CMS Innovation Center test of international reference pricing for selected Medicare drugs. GLOBE would set Medicare Part B payments for targeted drugs at a percentage of an international reference price (averaging prices paid in Germany, France, Japan, UK, and other countries). This approach is similar to the Most Favored Nation (MFN) model struck down in 2021; GLOBE frames it as a voluntary Innovation Center test rather than a mandatory rule. Drug manufacturers strongly oppose the model; biopharmaceutical industry groups argue international reference pricing would reduce U.S. drug access and undermine innovation incentives.
PBM fee disclosure requirements advancing: DOL proposed rules requiring pharmacy benefit managers (PBMs) — who manage Part D drug plans' formularies, negotiate rebates, and own specialty pharmacies — to disclose their fees, affiliated provider arrangements, and spread pricing. The proposals respond to congressional findings that PBM pricing opacity costs Medicare billions annually through undisclosed rebate arrangements. PBM consolidation (Express Scripts/Cigna, CVS Caremark, OptumRx) means three companies manage approximately 80% of Part D prescriptions; transparency into their economics is a rare bipartisan priority.