The US government named 10 of the best-selling drugs in the market as the first to face tough price regulation in a bid to slash healthcare costs, marking the biggest shake-up for the pharmaceutical industry in decades.

The new rules give the federal government the power to negotiate lower prices for some of the most expensive prescription drugs produced by Pfizer, MSD/Merck, Johnson & Johnson and other pharma companies purchased by Medicare, the US taxpayer-funded healthcare system for retirees.

The reforms, which have been bitterly opposed by the pharmaceutical industry, aim to cut exorbitant costs for Americans, who face some of the highest prices for prescription drugs in the developed world. In 2022, the country spent more than $600 billion (€553.4 billion) on medicines, almost half the total global outlay, according to Statista.

“While the pharmaceutical industry makes record profits, millions of Americans are forced to choose between paying for medications they need to live or paying for food, rent and other basic necessities,” said president Joe Biden, who is expected to deliver a speech at the White House on the changes later on Tuesday. “Those days are ending,” he said.

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The department of health said negotiations would begin this year and any negotiated prices would be implemented in 2026 for the 10 drugs, which cost Medicare $50 billion in the 12 months to the end of May. Retirees paid $3.4 billion of their own money for these drugs in 2022, a burden that was not reimbursed by insurers, the White House said.

The initial list of 10 drugs to face price negotiations includes a diabetes pill called Jardiance sold by Boehringer Ingelheim and Eli Lilly; a medicine to prevent strokes called Eliquis made by Pfizer and BMS; and a Novartis drug to treat heart failure called Entresto.

The Biden administration applied specific criteria in selecting the products for price talks, including their cost to Medicare and the level of competition for each drug. More drugs will be added to the list for government negotiations.

Under the proposed reforms the minimum cut from a drug’s list price will be 25 per cent, although the government may be able to secure much steeper discounts for some drugs.

The Congressional Budget Office, a non-partisan government spending watchdog, has estimated the drug price negotiation element of Biden’s reform package could save Medicare more than $100 billion over a decade.

The pharma industry has filed several lawsuits aimed at blocking the reforms, which are part of Biden’s Inflation Reduction Act. They have warned that the shake-up of drug pricing will cripple innovation and stymie the development of life-saving medicines.

Phrma, an industry trade body, said the reforms were the result of a “rushed process” focused on short-term political gain rather than what was best for patients.

“Many of the medicines selected for price setting already have significant rebates and discounts due to the robust private market negotiation that [already] occurs,” said Stephen Ubl, Phrma chief executive.

But a senior White House official said the Biden administration was “not backing down” in the face of legal challenges.

“There is no reason why Americans should be forced to pay more than any developed nation for life-saving prescriptions, just to pad Big Pharma’s pockets,” the official said. “The drug companies are running to court to try to accomplish through the courts what they couldn’t get in Congress, which is [to] block negotiation from happening.”

Manufacturers that do not comply with the negotiation process are liable to an excise tax, which starts at 65 per cent of a product’s sales in the US. – Copyright The Financial Times Limited 2023