Health Secretary Xavier Becerra breaks down Medicare drug price talks

When Congress passed the Inflation Reduction Act in 2022, there was a key provision that the Biden administration fought hard for. For years, private insurance companies negotiated with drug makers over prescription prices.

However, Medicare, representing 50 million seniors, did not have the same right to negotiate prices for its Part D coverage. This meant that Medicare basically had to accept the prices offered to them.

Health and Human Services Secretary Xavier Becerra joined “Start Here,” ABC News’ flagship daily news podcast, earlier this year to announce that negotiations were starting. They had selected 10 medications to prioritize and attempt to bargain down prices.

On Thursday, during the first public event held by President Biden and Vice President Harris since the Biden dropped out of the presidential race, they revealed that they had agreed on all issues. This is being described as a significant development for anyone on Medicare, and for anyone who pays taxes to fund the expenses of Medicare.

Secretary Becerra joined "Start Here" on Friday to discuss this further.

START HERE: Mr. Secretary, last time we spoke you had just identified the drugs…they included some diabetes drugs, some arthritis medications, treatments for blood clots and blood cancer. Where are we now? 

BECERRA: We are done with the negotiation, Brad. We have completed 10 drugs. Every company joined in the negotiations. We had offers, counter offers, and we hit a sweet spot with all ten. And that sweet spot will save Americans on Medicare who need these drugs lots of money. And it will save taxpayers who help fund the Medicare program lots of money, in the billions.

START HERE: Yeah. How much of a discount are we talking about here? 

BECERRA: So in some cases, the discount from the list price is up to 79%. I think the lowest discount is about 38%. And I do want to caveat that a bit. Very rarely does anybody pay list price for anything. And if you do, take it back and bargain a bit. Whether it's that car at the dealership where you look at list price, you don't pay that. When you go to the department store, you try to find everything you can on sale or, you know at some point it's going to go on sale.

And so everybody makes the effort to try to get the best price for whatever the product is. In this case, it's a very important product, it's your prescription medication. But you should still be able to get a good price, and that's what we did. We negotiated and got a much better price than what Medicare was getting.

START HERE: But just so we can we can be clear about that caveat. You're saying it's 68%, say it's like 79% less than the list price. But you guys weren't paying the list price earlier. Can you tell us how much you were paying on these drugs beforehand, and how much the new discount you've gotten is? 

BECERRA:  Yeah. And that's where it gets a little dicey because there are lots of nooks and crannies in the health care system. Some of them include what are, what is considered proprietary information of the companies, the drug companies, that they don't want disclosed. And so the net price that Medicare pays is lower than the list price, but still high.

START HERE: So there's some contract somewhere being like "You guys, no one can disclose what you guys had originally been paying." 

BECERRA: Yeah. We can't, we can't take you behind the curtain unless the drug companies tell us it's okay to do so.

START HERE: Were you able to actually push back against these drug companies, or was it kind of like "We'll ask once and then we'll have to take what we get. We're not going to risk not giving Americans these, these drugs."

BECERRA:  Well, let's just say that when they came in with their offer or counteroffer, the final price was neither our initial offer nor their official offer. But here's what I will tell you. The Congressional Budget Office, which is Congress' budget estimator, they're the ones that keep tabs of what legislation will cost -- will it save money or will it cost taxpayers money? And they are very stingy when it comes to saying "Oh, taxpayers will save money." Right?

Well, the Congressional Budget Office said with regard to the Inflation Reduction Act and prescription drug negotiation, they said, we believe in the first year of negotiation -- which we just finished -- in that first year, and they're projecting because they didn't know which drugs it would be, etc.. They said, we believe the Department of Health Human Services will save $3.7 billion. Well, we've saved $6 billion.

And on top of that, we're saving people out of pocket another billion and a half. But here's the kicker. They said over 10 years, they assume that this new law, over 10 years of negotiating, will save $100 billion. So if we're already almost double their first estimate for their first year, I guarantee you we're going to do better than the 100 billion, over 10 years.

 START HERE: Okay. When do the new prices go into effect, then I guess?

BECERRA: Jan. 1, 2026.

START HERE: Okay, so when that kicks in, how much of a discount will average Medicare patients actually see? Because, like, if you guys scored a 68% discount on Farxiga, like the diabetes kidney medication, does that mean that the person using that drug is going to pay, it doesn't mean they're going to pay 68% less. I mean, how much less would it be? 

BECERRA: Yeah. So remember, and that's also a difficult question because seniors don't typically pay very much for their prescription medication. Medicare the program, that's the beauty of Medicare, it covers the lion's share of the cost of those drugs. Some Americans still have to pay some out-of-pocket costs for their drugs, especially the higher cost drugs. So we're going to save folks quite a bit of money.

Let's put it this way: I can talk to you in total aggregate terms. We can now look at the price that we negotiated and say "Okay, if we had this price back in 2023, what would our cost have been?" And the result is we would have saved $6 billion to the health care program, and Americans will be able to save about a billion and a half dollars collectively in their out-of-pocket costs.

START HERE: The trade group that represents companies like Pfizer, Lilly, Merck, they've said we might not see as much innovation because we're not getting as much money. That's, that's constantly been sort of a critique of this. They also say that your math makes assumptions about how many people truly save money on this. They say a very small amount of people actually get this Part D plan in the way that would actually save the money here. What is your response to to to these pharmaceutical groups? 

BECERRA:  Well, remember, they're more than 50 million Americans who have prescription coverage under Medicare, the Part D program. There are about 9 million people in the Medicare program who use one of these 10 drugs. It's not a small universe of people. And these are very expensive drugs. When you can bring the price down of a drug that's listed for, say, $10,000, $12,000 to $3,000. That's a pretty good deal. It's still $3,000, but it sure saved you a ton of money. If you were paid $12,000 or 13,000 before that.

And so this will save not just the Medicare program money, but it will save Medicare beneficiaries money. And it certainly will pay taxpayers who today, when they work, have some of their money from their paycheck taken out so they could cover their Medicare investment into the future so that when they get turned 65, they can qualify. They will get to benefit from a strengthened Medicare program that will have those new resources available, because we didn't have to spend it at, for overcharging us for the prescription medication.

START HERE: Well, so now, I mean, the idea is that you'll negotiate more drug prices, right? So you got these 10 out of the way. What are the next 10 or the next 20, or do you guys have a sense of what types of drugs you're looking to target?

BECERRA:  Yeah. And here I have to be careful, because everything we say about a drug can move the price on the market. Right? And I don't want to be accused of trying to influence the price up or down. And so what I can tell you is the statute, the new law, the Inflation Reduction Act, gave a pretty clear prescription of how to select these, set of drugs that will be negotiated. That's a, it's a good thing in the way, in a sense that it doesn't let politics enter into this. It was pretty clear which drugs count. In this case, the first 10, they had to be the most expensive drugs in the Medicare system.

START HERE: All right. So then we'll see what happens next. All right. Secretary Xavier Becerra, thank you so much.

BECERRA: Brad, good to be with you.