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

For decades, Medicare couldn’t negotiate drug prices. That meant billions in spending went to pharmaceutical companies with no leverage to lower costs. But in 2022, everything changed. The Inflation Reduction Act gave Medicare the power to directly negotiate prices for the most expensive, single-source prescription drugs - and the first results are in. Starting January 1, 2026, 10 top-selling medications will see price drops of 38% to 79%. This isn’t a guess. It’s law. And it’s going to change how you pay for pills like Eliquis, Jardiance, and Xarelto.

What Drugs Are Being Negotiated?

The first round of negotiations picked drugs that cost Medicare the most and had no generic or biosimilar alternatives. These aren’t obscure meds - they’re the ones millions of seniors rely on every day. Eliquis, for example, is used to prevent strokes in people with atrial fibrillation. In 2022 alone, Medicare spent $6.3 billion on it. Now, after negotiations, that price is dropping by over 60%. Same with Jardiance, a diabetes drug that saw a 79% price cut. Xarelto, a blood thinner, is down 52%. These aren’t small changes. They’re life-altering for people on fixed incomes.

How the Negotiation Process Actually Works

This isn’t like haggling at a flea market. It’s a strict, government-run process with deadlines, rules, and paper trails. Here’s how it played out:

1. On February 1, 2024, Medicare sent each drugmaker an initial offer - based on what other countries pay, what private insurers negotiated, and how much the drug actually costs to make.
2. Drug companies had 30 days to respond with a counteroffer.
3. Medicare then held three face-to-face meetings with each company between March and July 2024.
4. By August 1, 2024, all negotiations were closed. Five drugs agreed during meetings. The other five were settled with final written offers.

The final price can’t go above two limits: either the average price Medicare paid last year (after rebates), or a percentage of the drug’s average market price. This stops companies from just raising prices before negotiation to make the cut look bigger.

Why This Is a Big Deal - and Why It Took So Long

Before this law, Medicare was legally barred from negotiating. Private insurers could - and did - get big discounts. But Medicare, which covers over 65 million people, couldn’t. The result? Americans paid more than people in Canada, Germany, or the UK for the same drugs. The VA, which has had negotiation rights since the 1990s, pays about 40% less than Medicare did for the same medications. Now, Medicare is finally catching up.

The delay wasn’t about money. It was about politics. Drugmakers spent over $500 million lobbying to block any negotiation power for Medicare since Part D started in 2003. They argued it would hurt innovation. But studies show the opposite: innovation thrives when companies compete on value, not just price tags.

What Happens to Your Out-of-Pocket Costs?

Lower list prices don’t always mean lower bills - but they usually do. If you’re in Medicare’s coverage gap (the “donut hole”), you’ll see immediate savings because you pay a percentage of the drug’s price. If you’re in catastrophic coverage, your savings might be smaller - but they’re still there. And if you’re paying cash, you’ll pay less at the pharmacy counter.

Here’s the catch: some plans might swap your drug for a cheaper alternative. That’s legal. But if your doctor says you need Eliquis specifically - not a generic - your plan must cover it at the new lower price. No substitution without approval.

What About Private Insurance?

You might think, “I’m not on Medicare - does this affect me?” Yes. It already is. Private insurers often use Medicare’s negotiated prices as a benchmark. If Medicare cuts Eliquis to $100 a month, a private insurer won’t pay $200. They’ll match it - or go lower. Experts estimate this could save private plans $200-250 billion over the next decade. That means lower premiums, lower copays, and fewer surprise bills for millions of Americans.

What’s Next? The Big Expansion

The first 10 drugs are just the start. In 2027, Medicare will negotiate 15 more. In 2028, it’ll be 15 again - plus it starts negotiating drugs given in doctor’s offices (Part B), like cancer treatments and infusions. That’s a bigger jump. These drugs are often more expensive and harder to replace. But the same rules apply: no negotiation unless the drug is at least 7 years old (or 11 for biologics). That protects new drugs, but it also means the biggest savings come from older, blockbuster meds.

By 2029, 20 drugs per year will be up for negotiation. That’s over 100 drugs by 2030. And the savings? The Congressional Budget Office estimates $98.5 billion over 10 years. Some analysts think it could hit $112 billion.

What Are the Risks?

Drugmakers aren’t happy. Four of the 10 companies sued to stop the program. They claimed it was unconstitutional. A federal judge dismissed those lawsuits in August 2024. Appeals are coming, but so far, the courts have backed Medicare’s authority.

Some doctors worry about Part B drugs. Right now, they get paid 6% above what they pay for the drug. If the drug price drops, their reimbursement drops too. That could hurt small practices. But Medicare is adjusting the formula to protect providers while still lowering costs.

There’s also the risk of drug shortages - if companies cut production to save money. So far, no shortages have been reported for the first 10 drugs. The FDA is monitoring this closely.

What Should You Do Now?

If you’re on Medicare and take one of the 10 negotiated drugs:

• Check your plan’s formulary in late 2025. Your drug might move to a lower cost tier.
• Ask your pharmacist if the price has changed - they’ll know before your bill does.
• If you’re on a high-deductible plan, ask about switching to a Medicare Advantage plan with better drug coverage.
• Don’t stop taking your meds. The lower price is coming - but not until January 1, 2026.

If you’re not on Medicare yet - say, you’re turning 65 in 2026 - this is a huge reason to enroll. You’ll get access to these lower prices from day one.

Bottom Line: This Isn’t a Trend. It’s a New System.

Medicare’s drug price negotiation isn’t a temporary fix. It’s a structural shift in how America pays for medicine. It’s not about cutting corners. It’s about stopping overpayment. For the first time, the government is using its massive buying power to bring prices down - not by force, but by smart negotiation.

The numbers don’t lie. A 79% cut on Jardiance? That’s $1,200 a year saved for a single patient. Multiply that by millions. That’s not just savings. That’s security. It means fewer people choosing between insulin and rent. Fewer seniors skipping doses because they can’t afford the copay. And fewer families drained by pharmacy bills.

This is what real change looks like. And it’s just getting started.