"On Tuesday, the Centers for Medicare & Medicaid Services (CMS) announced the next 15 drugs that will be subject to government price negotiations. This is the third round of selections, bringing the total number of drugs subject to the new price-setting program to 40, with 10 drugs selected in the first year and 15 in the second. Starting next year, the number of new drugs selected annually will increase to 20.

According to CMS, Medicare expenditures for the 15 newly selected products total $27 billion from November 2024 through October 2025. This compares to $40.7 billion in sales for last year’s 15 selected drugs (from November 2023 through October 2024) and $60 billion for the 10 drugs selected in the first year (also measured from November 2023 through October 2024). It seems as if the low-hanging fruit has been picked and that each subsequent round of negotiations will likely result in diminishing cost savings.

A supporter of the government’s price-setting power might have hoped that this year would yield more potential savings than last year because, for the first time, Medicare Part B drugs were eligible for selection (only Part D drugs could be selected in the first two rounds). However, despite the inclusion of six Part B drugs among the 15 selected products, aggregate sales for this year’s cohort are still lower than in the previous round.

The drugs selected this year are the top 15 from CMS’s list of 50 potential drugs for selection. Should the 20 drugs announced next year comprise drugs 16-35 on this list, sales will be considerably lower—just $10.2 billion, based on the most recent data. (Of course, the actual drugs selected in 2027 may differ from this, and their sales next year may be higher or lower than last year.)

Admittedly, a retrospective review of a drug’s past sales is an imperfect metric for estimating the potential prospective savings from the government’s price negotiations. A comprehensive analysis would project the future spending of each drug as a baseline from which to then estimate the savings from price setting. Such efforts should also consider the extent to which the government’s intervention is substituting for (and thus negating) the competitive, market-based savings that can be derived from generics and biosimilars.

Just because the savings from this ill-conceived program may be dwindling doesn’t mean the policy is less harmful over time. It still impedes incentives for drug innovation by creating a new uncertainty for drug developers. Moreover, the savings achieved through this policy likely pale in comparison to those achieved by a well-functioning generic and biosimilar market. Patent reforms that establish clearer limits on drug monopolies could reduce uncertainty and deliver more savings."