Insights from the list of negotiation-eligible drugs in 2027
On January 17, the U.S. Department of Health and Human Services (HHS) and the Centers for Medicare and Medicaid Services (CMS) announced the next 15 drugs selected for Medicare price negotiation.1 CMS will engage manufacturers in negotiations during 2025 to set what it calls the maximum fair prices (MFPs) for these drugs. The negotiated MFPs will be published by November 30, 2025, ahead of their initial price applicability year (IPAY) beginning January 1, 2027. This white paper provides a high-level overview of the selected drugs, their current formulary coverage, and insights into the potential impact of their negotiated MFPs.
The 15 drugs selected for the second round of negotiation represent nearly 15% of Medicare Part D gross costs2 in 2024. When combined with the 10 drugs selected for IPAY 2026, the 25 drugs account for more than one-third of Medicare Part D gross costs in 2024. Figure 1 summarizes the share of total gross Part D costs of selected drugs grouped by IPAY and the key condition treated.
Figure 1: Share of Part D gross costs subject to MFP
Note: Percentage shares are calculated using 2024 Part D claim data for January through August.
Focus on antidiabetic agents
Semaglutide (brand names Ozempic, Rybelsus, and Wegovy) headlines the list of 15 drugs selected for IPAY 2027, representing over 5% of Part D gross costs. Of the 25 selected drugs, 75% of the gross spend is associated with the treatment or prevention of diabetes, blood clots, or cancer, with selected antidiabetic products encompassing nearly 14% of all 2024 Part D gross costs. Figure 2 shows the Part D spending associated with the seven selected drugs commonly used to treat diabetes, grouped by their therapeutic class.
Figure 2: Share of Part D gross costs for negotiated diabetic drugs
In 2021, the Centers for Disease Control and Prevention (CDC) estimated that 24.4% of the U.S. population aged 65 and older were diagnosed with diabetes, with an additional 4.7% believed to have the condition but remain undiagnosed.3 The high prevalence of diabetes in the United States has spurred significant investment in developing medications to treat the disease, many of which have now been selected for MFP negotiation. These antidiabetic medications span multiple therapeutic classes, with the glucagon-like peptide-1 receptor agonists (GLP-1s) and sodium-glucose cotransporter-2 (SGLT-2) agents comprising the majority of spend. The smaller share attributed to rapid-acting insulins is driven in part by January 1, 2024, list price reductions for Novolog.
Some of these antidiabetics drugs have multiple indications. Both Jardiance and Farxiga are also indicated for heart failure and chronic kidney disease. While Wegovy is the same molecule as Ozempic and Rybelsus, it does not have a diabetes indication. Wegovy is indicated for reducing cardiovascular risks, and also has an indication for chronic weight management, though this is not currently a covered Part D benefit.
Focus on autoimmune agents
While autoimmune therapies are the fourth-highest gross cost group in Figure 1 above, it is worth noting they have several overlapping indications, summarized in Figure 3.
Figure 3: Indications for negotiated autoimmune agents
While each selected autoimmune agent brings unique indications to the list contained within selected products, all three are indicated for psoriatic arthritis. Plan sponsors will need to design formularies and coverage in light of all indications for both antidiabetic and autoimmune products due to mandated coverage, regardless of indication.
Selection process
The list of 15 drugs was selected from qualifying single-source drugs ranked by their gross Part D costs between November 2023 and October 2024. Drugs are exempt from selection if they have orphan status, meet the small biotech exception, are plasma-derived products, face bona fide generic or biosimilar competition at the time of selection, or have not met the minimum period since U.S. Food and Drug Administration (FDA) approval.
To be eligible for inclusion in the IPAY 2027 list, a small molecule drug must have first received FDA approval by February 1, 2018, and a biologic must have first received FDA approval prior to February 1, 2014. This can result in drugs making or missing selection by only several days, or it could result in selected drugs with lower spending than the true top gross cost drugs. For example, Biktarvy received FDA approval on February 7, 2018, missing the cutoff for IPAY 2027 inclusion by six days, gaining an additional year prior to selection.
Current formulary coverage of IPAY 2027 selected drugs
While eight of the 15 selected drugs already have universal coverage on individual market Part D plans in 2025, the other seven selections will have increased Medicare coverage as selected drugs are required to be on formulary. Figure 4 shows the brand names for which 2025 coverage is not universal and the percentage of Part D beneficiaries with formulary coverage for these drugs by standalone prescription drug plan (PDP) and Medicare Advantage Prescription Drug (MAPD) plan.
Figure 4: Percentage of 2025 Part D beneficiaries with formulary coverage of IPAY 2027 drugs
Notes: Calquence, Ibrance, Linzess, Ofev, Pomalyst, Vraylar, Xifaxan, and Xtandi are covered by all 2025 individual market Part D formularies.
Values are weighted on September 2024 enrollment.
Protected class selections would not alter coverage
Calquence, Ibrance, Pomalyst, Vraylar, and Xtandi all have universal coverage due to Part D protected class rules, requiring nearly all drugs in the class to be covered on formulary.4 As a result, the selection of these products for negotiation will not result in greater access than would have otherwise been available for beneficiaries. Linzess, Ofev, and Xifaxan are not in protected classes but do have universal coverage in 2025, so these products will also maintain the same level of access.
Wegovy’s selection may result in more therapeutic areas with MFPs
With the exception of Wegovy, all selected brands for IPAY 2027 have coverage for the majority of beneficiaries in 2025. Wegovy, a GLP-1, is indicated for both chronic weight management and for reducing the risk of cardiovascular complications in patients with obesity or who are overweight. Due to historical restrictions on required Part D coverage for therapies indicated for weight management, Wegovy’s current Part D coverage is limited to its cardiovascular indication. Semaglutide’s selection for negotiation, which requires it to be on formulary, will result in a significant increase in coverage of Wegovy in 2027. Coupled with the potential finalization of the 2026 proposed rule, which would require Part D coverage of anti-obesity medications (AOMs), the covered indications for semaglutide products may expand as well.5 Semaglutide also has active phase 3 clinical trials for Alzheimer’s disease and metabolic dysfunction-associated steatohepatitis (MASH), and recently was approved under the Ozempic brand name for treatment of chronic kidney disease.6,7
Reversions of 2025 formulary decisions will occur in 2027
While nearly all selected products had similar coverage between 2024 and 2025, three products had notable decreases in coverage in 2025:
- Otezla was covered in 2024 for over 99% of beneficiaries. As shown in Figure 4 above, Otezla’s coverage in 2025 is around 65% in both MAPD and PDP markets.
- PDP coverage of Tradjenta moved from 97% to 85% coverage, though MAPD coverage remained close to 100% in both years.
- Rybelsus was covered for over 90% of beneficiaries in 2024 in PDP and MAPD. In 2025, MAPD coverage remains above 90%, but only 68% of PDP beneficiaries will have access.
Plan sponsors may decide whether or not to cover these products again in 2026, but 2027 coverage will be required, absent generic or biosimilar launches.
Coverage requirements for selected products and their generics or biosimilars
CMS reviews data each month to monitor the uptake of any approved generic or biosimilar alternatives to selected drugs. Once CMS determines bona fide marketing of a generic or biosimilar is occurring, the corresponding selected drug will be removed from the selected drug list as of the first calendar year that begins nine months after the date this determination is made. In other words, if a generic alternative to a selected drug launches and CMS determines bona fide marketing is occurring before March 31, 2027, then the brand would cease to be a selected drug beginning in calendar year 2028.
The recently released draft calendar year (CY) 2026 Part D Redesign Program instructions described when a plan can make formulary changes as generic and biosimilar competitors become available for selected drugs.8 Consistent with previous guidance on the topic, CMS clarified that plan sponsors would have a 30-day window after the launch of a generic or biosimilar (corresponding drug) during which they could remove coverage of the selected product, as long as coverage was added for its corresponding drug at an equal or better tier.9 The instructions made a key clarification with respect to the launch timing of the corresponding drug, effectively bifurcating plan options depending on whether the corresponding drug is launched before or after initial formulary submissions in June:
- Corresponding drug launches after June formulary submission: The plan sponsor can elect to substitute coverage for the corresponding drug within 30 days.
- Corresponding drug launches before June formulary submission: Coverage of the selected product remains mandatory for the duration of the following plan year (e.g., for IPAY 2026, if a corresponding drug is launched prior to June 2025, then coverage for 2026 remains mandatory for the selected product, even though a generic is available).10
As such, it is possible not all MFP drugs will be required to be covered on formularies, depending on the timing of corresponding drug launches.
Maximum fair prices
The MFPs for 2027 selected drugs will be negotiated between CMS and manufacturers in the coming months, with final MFPs announced by November 30, 2025. Looking back to the first round of drugs selected for IPAY 2026, the level of discount achieved by the MFP ranged widely in value. CMS reported list price discounts ranging from 38% to 79% of list price, though the loss of rebates on selected drugs will offset these savings. Manufacturers are expected to eliminate most, if not all, rebates on selected products in Medicare Part D, as all payers will have access to the MFP. Reduced or eliminated rebates for selected drugs may result in more emphasis on a manufacturer’s broader portfolio during negotiation with plan sponsors and pharmacy benefit managers (PBMs). As noted above, 2026 and 2027 selected drugs account for more than one-third of Part D gross costs. This dynamic, coupled with recent large list price and rebate reductions on other popular drugs, will continue to deemphasize rebates as a means to reduce plans’ bid amounts and differentiate from competitors and could lead to changes in PBM contracting and rebate guarantee levels.
In addition to the loss of rebates on selected drugs, the Manufacturer Discount Program (MDP) will not be paid by manufacturers for selected drugs. MDP liabilities will be covered by the federal government instead, through increased reinsurance and the selected drug subsidy. Beginning in 2025 the MDP replaced the former Coverage Gap Discount Program (CGDP). New for IPAY 2027, MFPs will directly account for CGDP/MDP amounts. CMS will consider the “total gross covered drug cost (TGCDC) net of direct and indirect remuneration (DIR) and CGDP payments” of therapeutic alternatives when developing its initial offer.11 This is a change from the IPAY 2026 guidance, which only included DIR in net price, and thus could result in lower MFP discounts in 2027. That said, the net cost calculation will use historical CGDP data for therapeutic alternatives, but historical CGDP amounts are often very different from—and in many cases lower than—projected MDP amounts for a given drug. Thus, while incorporating CGDP into the MFP offer gets to a closer representation of true net price, it will likely not fully align.
It is difficult to predict whether the 2027 final MFPs will mirror discounts negotiated for IPAY 2026. In addition to the change in MDP treatment noted above, changes in CMS and HHS leadership under the new administration may lead to a change in negotiation strategy. The addition of several oncology treatments—a class that has minimal rebates in Part D—could automatically lead to deeper discounts, as the statutory MFP ceiling price will likely be at a much greater discount than current net prices. On the other hand, with loss of exclusivity expected in 2028 for several of the selected drugs, any additional savings could be temporary, as the market naturally shifts to generic alternatives for these products.
Conclusion
As Part D payers make product and formulary decisions for the coming year, they must consider both the initial 10 drugs selected for 2026 and the subsequent 15 drugs selected for 2027. The net financial impact of CMS negotiation will be driven by the difference in MFPs relative to current net prices, and by the timing of future generic and biosimilar competition. Manufacturers will reflect on the first round of negotiation to inform their strategies in negotiating the next round of drugs, but face uncertainty from shifting priorities of a new administration. Understanding the strategic and financial implications of Medicare price negotiation remains key for the success of Part D stakeholders.
1 CMS (January 17, 2025). HHS Announces 15 Additional Drugs Selected for Medicare Drug Price Negotiations in Continued Effort to Lower Prescription Drug Costs for Seniors. Press release. Retrieved February 4, 2025, from https://www.cms.gov/newsroom/press-releases/hhs-announces-15-additional-drugs-selected-medicare-drug-price-negotiations-continued-effort-lower.
2 Based on Milliman calculations using 100% of Medicare Part D claims data in CMS Research Identifiable Files (RIF) incurred in January through August 2024.
3 American Diabetes Association. Statistics About Diabetes. Retrieved February 4, 2025, from https://diabetes.org/about-diabetes/statistics/about-diabetes.
4 CMS (January 15, 2016). Medicare Prescription Drug Benefit Manual: Chapter 6 – Part D Drugs and Formulary Requirements. Retrieved February 4, 2025, from https://www.cms.gov/medicare/prescription-drug-coverage/prescriptiondrugcovcontra/downloads/part-d-benefits-manual-chapter-6.pdf.
5 The full text of the proposed rule is available at https://www.federalregister.gov/documents/2024/12/10/2024-27939/medicare-and-medicaid-programs-contract-year-2026-policy-and-technical-changes-to-the-medicare.
6 Novo Nordisk. R&D Pipeline. Retrieved February 4, 2025, from https://www.novonordisk.com/science-and-technology/r-d-pipeline.html.
7 Novo Nordisk. FDA approves Ozempic® (semaglutide) as the only GLP-1 RA to reduce the risk of worsening kidney disease and cardiovascular death in adults with type 2 diabetes and chronic kidney disease. Retrieved February 6, 2025, from https://www.novonordisk-us.com/media/news-archive/news-details.html?id=915253.
8 CMS. Final CY 2025 Part D Redesign Program Instructions. Retrieved February 4, 2025, from https://www.cms.gov/files/document/final-cy-2025-part-d-redesign-program-instructions.pdf.
9 CMS (October 2, 2024). Medicare Drug Price Negotiation Program: Final Guidance, Implementation of Sections 1191-1198 of the Social Security Act for Initial Price Applicability Year 2027 and Manufacturer Effectuation of the Maximum Fair Price in 2026 and 2027. Retrieved February 4, 2025, from https://www.cms.gov/files/document/medicare-drug-price-negotiation-final-guidance-ipay-2027-and-manufacturer-effectuation-mfp-2026-2027.pdf.
10 Note that the corresponding drug must be available on the May CMS formulary reference file (FRF) to be covered as of bid submission.
11 CMS (October 2, 2024), Medicare Drug Price Negotiation Program, op cit.