Medicare Drug Price Negotiation Program

Key facts

Legal basis

Inflation Reduction Act of 2022; Social Security Act Sections 1191 to 1198

Administered by

CMS

First negotiated prices

Effective January 1, 2026, for 10 Part D drugs

Eligibility timing

At least 7 years after approval for drugs, 11 years for biologics

Part B drugs

Eligible starting with prices that take effect in 2028

What is the Medicare Drug Price Negotiation Program?

Before the Inflation Reduction Act, federal law barred Medicare from negotiating drug prices directly in Part D. The program now lets CMS select drugs with high Medicare spending, negotiate with their manufacturers and set a maximum fair price (MFP) that applies to Medicare utilization.

The first cycle covered 10 Part D drugs selected in 2023, with negotiated prices published in 2024 and effective in 2026. A second cycle of 15 Part D drugs was selected in 2025, with prices effective in 2027. Starting with prices effective in 2028, selected drugs can include Part B drugs, and the number selected rises to up to 20 per year for 2029 and later.

How drugs are selected and priced

The statute sets the main rules:

• Qualifying drugs: generally small molecule drugs at least 7 years past FDA approval and biologics at least 11 years past licensure, with no approved and marketed generic or biosimilar.
• Exclusions: low-spend drugs, plasma-derived products and certain orphan drugs. A 2025 law broadened the orphan drug exclusion.
• Negotiation: CMS makes an initial offer, the manufacturer can counteroffer, and the process ends with an agreed MFP or no agreement.
• Ceiling: the MFP cannot exceed a statutory ceiling tied to a percentage of non-federal average manufacturer price, and that percentage is lower for drugs longer on the market.
• Enforcement: manufacturers that refuse to participate face an excise tax unless they withdraw their drugs from Medicare and Medicaid agreements, and civil monetary penalties apply to certain violations.

Why the negotiation program matters

Selection lists and MFPs reset Medicare net prices for some of the highest-spending brands, which affects manufacturer revenue forecasts, Part D plan bids and formulary decisions. The eligibility clocks also influence development strategy, including debate over whether the shorter clock for small molecules discourages investment in pill-based drugs.

The program interacts with other pricing systems. MFPs are excluded from Medicaid Best Price, and manufacturers do not have to provide both an MFP and a 340B price on the same unit. Manufacturers and industry groups have challenged the program in federal court; the appeals courts that ruled through 2025 did not strike it down, and litigation continues.