On March 13, 2026, the Centers for Medicare & Medicaid Services announced that the manufacturer of every one of the fifteen drugs selected for the third round of Medicare’s drug price negotiation program had agreed to take part, along with the manufacturer of a sixteenth drug up for renegotiation. A unanimous yes could read like an industry embracing price talks it once fought hard against in Congress. The law behind that vote tells a different story: manufacturers were never really choosing whether to negotiate, only which of two costlier alternatives to avoid instead. For a retiree filling one of those fifteen prescriptions, what “agreed” actually guarantees matters more than the number of companies that said it.
An Escalating Tax Was Always the Alternative to Signing
The Inflation Reduction Act of 2022 built two enforcement tools into the negotiation program from the start, both aimed at a manufacturer that refuses to sign an agreement with the government once its drug is selected. One is a tax, applied directly to that manufacturer’s sales of the selected drug, that grows sharply the longer the company holds out. The other removes the manufacturer from Medicare and Medicaid coverage altogether, not just for the drug that was selected but for its entire product line sold into either program. The law does give a manufacturer a say in one narrow sense: it must affirmatively enter into an agreement with the government for a price to be negotiated at all, rather than having a price simply imposed on it. But between an escalating sales tax, a total exit from the two largest buyers of prescription drugs in the country, and signing, few manufacturers have ever treated it as a real three-way choice.
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The Tax Climbs to 95 Percent of a Drug’s Sales
The mechanism is written into a new chapter of the federal tax code that the Inflation Reduction Act added specifically for this purpose. Under Internal Revenue Code section 5000D, a manufacturer that sells a selected drug without a negotiation agreement in place owes an excise tax calculated as a percentage of that drug’s United States sales, and the percentage is not fixed. The Treasury Department’s implementing regulations set that rate, called the “applicable percentage,” between 65 percent and 95 percent, rising the longer a sale occurs after a manufacturer’s refusal begins. A separate explainer from the nonpartisan health policy research organization KFF puts the escalation in concrete terms: the tax starts at 65 percent of a product’s U.S. sales and climbs ten percentage points every quarter a manufacturer keeps selling without an agreement, up to a 95 percent ceiling. KFF’s summary also confirms the law’s second alternative: rather than pay the tax, a manufacturer can withdraw all of its drugs, not only the selected one, from coverage under both Medicare and Medicaid, forfeiting sales to the two largest government drug purchasers to avoid negotiating the price of a single product. A manufacturer that signs an agreement and later refuses to actually honor the price it accepted faces a third penalty on top of those two, a civil fine equal to ten times the difference between what it charged and the agreed price. Measured against a 95 percent tax, a total exit from two federal health programs, or a tenfold penalty, signing an agreement is simply the least expensive item on the menu.
Drugmakers Challenged the Program’s Constitutionality While Negotiating Anyway
That gap between legal compliance and genuine agreement has played out most visibly in federal court. AstraZeneca sued the Department of Health and Human Services in 2023 over the negotiation program’s constitutionality, arguing that being forced to negotiate a price for its diabetes and heart-disease drug Farxiga deprived the company of a property interest without adequate due process, even as it simultaneously worked through CMS’s negotiation steps and reached an agreed price for that same drug’s first pricing cycle. The U.S. Court of Appeals for the Third Circuit rejected that challenge in May 2025, ruling that a drugmaker has no protected right to sell a product to Medicare beneficiaries at a price higher than what the government is willing to reimburse. AstraZeneca was one of several manufacturers pursuing similar claims: Novo Nordisk, Novartis, Bristol Myers Squibb, Johnson & Johnson’s Janssen unit and Boehringer Ingelheim all raised comparable constitutional arguments in separate cases, including the claim that the choice between the excise tax and exclusion from Medicare and Medicaid amounts to unlawful coercion rather than voluntary participation. On May 18, 2026, the Supreme Court declined to hear any of those appeals, denying certiorari without comment and leaving the lower courts’ rulings in place. Manufacturers, in short, have spent years arguing in federal court that the program is unlawful while still signing its agreements and negotiating its prices, a tension the March 13 participation announcement never mentions.
What Fifteen Drugs Staying Covered Means for a Medicare Budget
For a retiree or a fixed-income household currently taking one of the fifteen selected drugs, the participation announcement carries a more concrete guarantee than the percentage of manufacturers who signed on. Because every company agreed, none of those medicines is at risk of being pulled from Medicare Part B or Part D coverage over a manufacturer’s refusal to negotiate, which is the one outcome the statute’s alternatives were actually designed to prevent. CMS’s own fact sheet on the third cycle lays out what happens now that participation is settled: the agency sends each manufacturer an initial price offer no later than June 1, 2026, both sides can meet and counter through the summer and fall, and any price that results from this round takes effect starting January 1, 2028, not this year, next year, or this fall’s enrollment season. Nothing about a pharmacy counter or a Part B bill changes because fifteen companies said yes in March. What changed is that the alternative scenario, a manufacturer choosing the tax or a market exit over a negotiated price and pulling a drug out of Medicare and Medicaid in the process, is no longer on the table for this round. That is the part of “every manufacturer agreed” worth remembering, well before the effective date arrives, and it matters more than the fact that the vote came back unanimous.
This article was produced with the assistance of AI and reviewed by The Financial Wire editorial team.
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David M. Keller is a finance writer based in Columbus, Ohio, covering personal finance and consumer-focused economic topics. He earned his degree in journalism from Ohio University and began his career reporting on local business and economic trends for a regional media outlet. Since then, he has contributed to a variety of online publications, focusing on clear, practical coverage of topics such as cost of living, debt, and everyday financial decision-making.
