Starting in 2026, Medicare will have the ability to negotiate drug prices, potentially generating significant savings. According to a recent study, the minimum discount stipulated by the Inflation Reduction Act exceeds 2020 rebates for 4 of the 10 drugs expected to be negotiated in 2026.

These include the drug etanercept, which will be subject to a minimum discount of 60%, compared to an estimated rebate of 39.1%, and the cancer drugs ibrutinib, palbociclib, and enzalutamide, all of which will be subject to a minimum discount of 25%, compared with estimated rebates of 9%, 5.7% and 15.0%, respectively.

Based on 2020 gross spending, the minimum required discount on these four drugs would generate savings of $1.8 billion. However, to achieve the savings projected by the Congressional Budget Office ($3.7 billion), negotiated prices will have to fall below the maximum negotiated price.

The negotiated price will be capped at the greater of the net price after rebates or a maximum percentage of the list price based on the drug’s age. In 2026, current prices paid by Medicare plans will set the cap for the negotiated price for six drugs; minimum discounts based on a drug’s age will apply to the remaining four.

The study also highlights the importance of current rebates for drugs in competitive therapeutic classes in the setting of maximum discounted prices under Medicare price negotiations. The analysis also indicates that the statutory minimum discounts under the Inflation Reduction Act will not be sufficient to achieve the savings estimated by the Congressional Budget Office associated with drug price negotiation. These additional savings below the ceilings for negotiated prices correspond to $1.9 billion or an average 10% discount off the maximum negotiated price for the 10 drugs expected to face negotiation in 2026.