Medicare Drug Price Negotiations Are Negotiations

Sometimes writers place quotation marks around a word or phrase to signal sarcasm, irony, disbelief, skepticism, disagreement, or belief that the words are misused. This is like preceding the word or phrase with “so-called.” These scare quotes are analogous to a speaker using air quotes.

Some critics place scare quotes around the word “negotiations” when discussing Medicare drug price negotiations under the Inflation Reduction Act (IRA), signaling skepticism or outright dismissal. This rhetorical device attempts to delegitimize the genuine price negotiations mandated by the IRA. When speaking, these critics might even resort to air quotes. Their critiques often center on three misleading claims:

1. The negotiations are “forced”
2. The process is a “sham”
3. Prices are unilaterally “set” by the government

1. The claim that negotiations are “forced”

Critics claim that drug manufacturers are “forced” into negotiations because of Medicare’s leverage. While the IRA does apply strong incentives, manufacturers still have options:

• Participate in Medicare and Medicaid
• Withdraw all their products from these programs
• Decline negotiation and accept the excise tax

The strongest refutation of this “forced” claim is that all 10 manufacturers of the first selected drugs chose to participate in negotiations, even as they simultaneously challenged the IRA in court and publicly opposed the program. This revealed preference — where manufacturers chose to negotiate despite opposing the policy — shows that they considered negotiating a better financial option than walking away. Actions often speak louder than words: If the process was as bad as critics claim, manufacturers could have opted out entirely, yet none did.

2. The claim that the process is a “sham”

Another common critique is that the negotiations were not genuine. This is inaccurate. The actual structure of these negotiations tells a different story. For the first 10 drugs selected, a structured exchange of offers and counteroffers occurred — a flow that meets the standard definition of negotiation:

1. Initial CMS offer: CMS developed an initial price offer for each drug, following statutory guidelines and agency guidance.
2. Manufacturer counteroffer: Each participating drug manufacturer submitted a counteroffer in response.
3. Negotiation meetings: CMS met with each manufacturer three times to discuss offers, counteroffers, and supporting evidence, and try to arrive at a mutually acceptable price. CMS revised each initial offer upward at least once, and many manufacturers revised their counteroffers downward. For 6 of the 10 drugs, CMS moved more than the manufacturer prior to reaching agreement. The fact that 4 moved more than CMS is further evidence of a true negotiation.

CMS considered multiple factors when negotiating:

• R&D costs and the extent to which the manufacturer has recouped its investment
• Current production and distribution costs
• Prior federal financial support
• Data on pending and approved patents and exclusivities recognized by the FDA
• Market data, including U.S. revenue and sales-volume data
• Comparative effectiveness of the drug and the extent to which it addresses an unmet need

The negotiation process may include confidentiality provisions, factors considered when developing offers and considering counteroffers, specified timelines, and the final-offer structure. Critics argue that such elements limit manufacturers’ leverage, reducing the process to a formality rather than a true negotiation. Structured bargaining is, however, a standard feature of many procurement processes, particularly when the government is a major buyer. The ability for CMS to submit offers and for manufacturers to submit counteroffers demonstrates a genuine back-and-forth dynamic.

3. The claim that Medicare “sets” prices

Critics claim that Medicare “sets” prices unilaterally, but this mischaracterizes the process. During the negotiation process, CMS and manufacturers reached mutually agreed-upon prices during negotiations for five drugs, and in four of these cases, CMS accepted a revised manufacturer counteroffer. For the remaining five, CMS issued a final written offer, which manufacturers accepted before the deadline. The prices were negotiated — this was not unilateral price-setting.

Yes, Medicare has significant leverage but, importantly, manufacturers also wield influence. A manufacturer may walk away if the price is unacceptable, though doing so carries business and reputational risks. If a company does choose to exit Medicare, political backlash from providers and patients could pressure Medicare to reconsider its pricing offers.

“Experts” should not write “negotiations”

Negotiations between the federal government and suppliers take many forms. For commercial off-the-shelf items like personal computers, negotiations may center on price, volume discounts, warranty terms, and delivery schedules. For customized purchases that are complex and costly (e.g., aerospace products), specifications and other terms are typically negotiated along with price. For sole-source purchases where only one supplier is available, the federal government negotiates a fair and reasonable price — this most certainly occurred when the VA purchases the da Vinci Surgical System from Intuitive Surgical. Despite their differences, all of these negotiations share key characteristics: supplier participation is voluntary (not “forced”), the negotiation process is structured (not a “sham”), and the supplier agrees to a price (it is not “set” by the government).

Looking at the broader landscape of government negotiations, Medicare’s process aligns with standard practices across various industries. The ability of both parties to engage in structured bargaining, weigh their options, and make concessions is exactly what defines a real negotiation.

Whether Medicare drug price negotiations are “real” negotiations should not be up for negotiation. The first round of negotiations demonstrated that manufacturers made rational choices to participate, engage in substantive back-and-forth negotiations, and ultimately reach mutually acceptable prices, with both sides making concessions.

Critics’ use of scare quotes around “negotiations” is a misleading characterization of a structured, lawful process. Their use of rhetoric like “coercion,” “extortion,” and “sham” sound compelling and makes for good copy but does not withstand scrutiny. Those “experts” who question whether Medicare drug price negotiations are real negotiations should revisit the theory and practice of negotiations.