How Medicare Drug Price Negotiations Work and What It Means for Your Prescription Costs

For decades, Medicare couldn’t negotiate drug prices. That changed in 2022, when the Inflation Reduction Act gave the federal government the power to step in and set fair prices for the most expensive prescription drugs. Starting January 1, 2026, this new system is finally kicking in-and it’s already cutting prices by as much as 79% for some of the most commonly used medications.

What’s Actually Changing?

Before this law, Medicare had to accept whatever price drugmakers set. Private insurers could negotiate discounts behind the scenes, but Medicare was locked out. That meant seniors paid more, and taxpayers footed the bill for high list prices. Now, for the first time, the Centers for Medicare & Medicaid Services (CMS) can directly negotiate with drug companies. They pick the drugs with the highest spending and no generic or biosimilar competition. The first 10 drugs selected include Eliquis (for blood clots), Jardiance (for diabetes), and Xarelto (another blood thinner). These drugs cost Medicare over $50 billion in 2022 alone.

The goal isn’t to slash prices to zero-it’s to bring them down to what’s fair. CMS uses a formula based on what other payers pay, how many people use the drug, and whether there are similar treatments available. The final price, called the Maximum Fair Price (MFP), must be lower than the drug’s average market price. For the first round, CMS offered initial prices ranging from 38% to 79% below what drugmakers were charging. Five companies agreed during meetings. The other five agreed after written offers. No one got to keep their old price.

How the Negotiation Process Actually Works

It’s not a backroom deal. It’s a legal process with strict deadlines and public records. Here’s how it played out for the first 10 drugs:

1. On February 1, 2024, CMS sent each drugmaker an initial price offer, with a written explanation of how they calculated it.
2. Drugmakers had exactly 30 days to respond with a counteroffer.
3. CMS then held three formal negotiation meetings with each company between March and July 2024.
4. By August 1, 2024, all negotiations had to end. The final prices were published on August 16, 2024.
5. Starting January 1, 2026, those prices become the new standard for all Medicare Part D plans.

Manufacturers can’t just say, “We won’t sell it for less.” If they refuse to negotiate, they face a steep penalty: a 95% tax on all U.S. sales of that drug. That’s not a threat-it’s a legal requirement. So far, all 10 companies participated. Four of them sued, claiming the law is unconstitutional. A federal judge dismissed those lawsuits in August 2024. Appeals are expected, but the process continues.

What This Means for Your Out-of-Pocket Costs

If you’re on Medicare and take one of these 10 drugs, your costs will drop-sometimes dramatically. For example, Eliquis (apixaban), which cost over $500 a month before negotiations, is now priced at a 79% discount. That could mean your monthly copay drops from $150 to under $30, depending on your plan.

But here’s the catch: not everyone feels the savings the same way. If you’re in the “donut hole” (the coverage gap), you’ll see immediate relief because your out-of-pocket costs are based on the negotiated price. If you’re in the catastrophic phase, your 5% coinsurance will still be based on the lower price, so you save too-but the change might not feel as big because you were already paying less.

Some people worry they’ll be forced to switch drugs. CMS says they’ll keep the same formularies unless the negotiated drug is the only option. If your doctor prescribed Eliquis and it’s now cheaper, you’ll likely keep it. But if your plan had a cheaper alternative, they might move you. You’ll get a notice by October 15, 2025, telling you what’s changing.

Why This Matters Beyond Medicare

This isn’t just about Medicare. Private insurers are watching closely. When the government sets a new benchmark price, companies often adjust their own contracts to match. That’s called “spillover pricing.” Stanford Medicine estimates private insurers could save $200-250 billion over the next decade because of this ripple effect. That means even if you get your drugs through an employer plan, you might see lower prices too.

Drugmakers say this will hurt innovation. They argue that if they can’t charge high prices, they won’t invest in new drugs. But the Office of Management and Budget says those claims are exaggerated. The real threat isn’t to innovation-it’s to profit margins. The first 10 negotiated drugs represent less than 2% of all prescription drugs, and only 27% of small-molecule drugs even qualify for negotiation (they have to be at least 7 years old with no generics). So most new drugs won’t be affected for years.

What’s Coming Next

The program isn’t stopping. In 2027, 15 more drugs will be added. In 2028, it expands to Part B drugs-those given in doctor’s offices, like injections for arthritis or cancer. That’s a bigger shift because doctors get paid a percentage of the drug’s price. When the price drops, their reimbursement drops too. That’s why some physician groups are pushing back. They’re worried about losing income. CMS is working on new payment models to help practices adjust.

By 2029, 20 drugs will be negotiated every year. That means more savings. More transparency. More pressure on drugmakers to stop raising prices every year just because they can.

What You Should Do Now

If you take one of the first 10 negotiated drugs, you don’t need to do anything yet. But here’s what you can do to prepare:

• Check your Medicare Part D plan’s formulary in October 2025. You’ll get a notice in the mail.
• Compare your current copay to the projected price. You might be surprised how much you save.
• If you’re on a high-cost drug not on the list yet, keep an eye out. More drugs will be added every year.
• If you’re on a non-Medicare plan, ask your insurer if they’ll match the Medicare price. Many already do.

This isn’t a magic fix. It won’t bring down the price of every drug overnight. But it’s the first real step in the U.S. to say: enough. We’re not going to pay whatever the drug company demands. We’re going to pay what’s fair. And for millions of seniors, that’s already making a difference.