Six of the world's biggest drug firms walked into the Supreme Court on a mission.
They wanted to kill Medicare's new power to talk down drug prices.
They walked out with nothing.
Inside The Medicare Price Talks
The 2022 Inflation Reduction Act gave Medicare a new tool.
For the first time, the program could sit down with drug firms and haggle on prices for some of the priciest drugs in the country.
Drug firms fought it in court for years. They lost again and again.
Monday was their last shot.
The first round covered 10 drugs and is set to save the U.S. government about $6 billion. Seniors are set to pay about $1.5 billion less out of pocket.
AstraZeneca's diabetes drug Farxiga landed at a 68% cut off its list price.
Bristol Myers Squibb's blood thinner Eliquis was also in that first batch.
Those new prices took effect in January.
We break down moves like this in Market Briefs each weekday, and you get a free investing masterclass when you join.
Why The Drug Firms Lost
The drug firms had a few claims. They said the program forced them into a "sham" deal that broke their right to due process.
They also said it forced them to publicly back prices they did not back. They framed that as a free speech problem.
The courts kept pointing back to one fact. Joining Medicare is voluntary.
If a firm does not like the price, it can pull its drugs from the program.
Every lower court agreed. With no split between appeals courts, the Supreme Court had little reason to step in.
What This Means Now
The savings get bigger from here. Round two covers 15 drugs.
It's set to save Medicare about $12 billion when those prices kick in next January.
Round two also pulled in the biggest GLP-1 drugs. That includes Ozempic, Rybelsus, and Wegovy.
Round three is already in motion. It will bring the total list of drugs with talked-down prices to 40.
The list keeps growing because the law picks drugs with the highest total Medicare spend. Those drugs tend to be the biggest cash drivers for pharma.
Medicare and Medicaid are huge markets for the drug trade. The U.S. spent more than $250 billion on Medicare drugs in 2021 alone.
Walking away from those programs is not a real option for most firms.
For investors, the math is simple. The most lucrative corner of pharma is now stuck with price talks for good.
The legal off-ramp through the courts is closed. Other firms with cases still pending will be watching close to see how lower courts move next.
What To Watch
A few cases are still pending in lower courts. They could open new doors down the road.
But none of them are close to a quick win.
The fight is moving from courtrooms to balance sheets. Pharma's task now is to manage the hit, not block it.
For a five-minute morning read on the stories that move markets, sign up for Market Briefs and get a 45-minute investing course as a bonus.
