U.S. House passes drug pricing legislation

This morning, the U.S. House passed drug pricing legislation as part of the Build Back Better Act (BBBA) (specifically the Rules Committee version available here and the manager’s amendments available here).  In prelude to the vote, the Congressional Budget Office released its score of the BBBA, concluding that it “would result in a net increase in the deficit totaling $150.7 billion over the 2022-2031 period,” with $296,587,000 of that deficit attributable to the drug pricing, Medicare Part D benefit redesign, and related provisions.  

The legislation will next proceed to the Senate for consideration, where it could be amended.  If the bill were to become law as currently drafted, it would provide for, among other things:

  • A drug price negotiation program for certain high Medicare spend single source drugs, with prices capped by reference to non-federal average manufacturer price (non-FAMP);

  • Rebates on drugs payable under Medicare Part B or D whose prices increase faster than inflation; and

  • Certain Medicare Part D benefit redesign provisions, including eliminating the coverage gap and substituting the manufacturer coverage gap discount program with a new manufacturer discount program.

Drug price negotiation program

The BBBA would establish a “Drug Price Negotiation Program” that seeks to lower the prices of certain high Medicare spend single source drugs under Medicare Parts B and D, starting in 2025.

What drugs would be eligible for selection for negotiation?

  • The universe of drugs eligible for selection for negotiation generally would include:

    • Drug products.  Food and Drug Administration (FDA)-approved drugs for which at least 7 years have elapsed from approval and for which there is no generic on the market.

    • Biological products.  FDA-licensed biologics for which at least 11 years have elapsed since licensure and for which there is no biosimilar on the market.

    • A note on exclusivity periods.  The legislation clarifies that the negotiated price would not apply until 9 years (for drugs) or 13 years (for biologics) after approval or licensure. 

    • A note on authorized generics.  In determining whether there is a generic or biosimilar on the market, an authorized generic would not count.

    • All insulin products.

  • Such universe of drugs would exclude:

    • Small biotech drugs.  The exclusion of small biotech drugs would apply only for 2025, 2026, and 2027. For purposes of this exclusion, small biotech drugs:

      • Include a drug of a manufacturer:

        • Whose total 2021 Part B or D drug expenditures constitute no more than 1 percent of total 2021 Part B or D expenditures for all drugs of all manufacturers and

        • Whose total 2021 Part B or D drug expenditures constitute at least 80 percent of total 2021 Part B or D expenditures for all drugs of that manufacturer.

      • Exclude:

        • A drug of a manufacturer that is acquired by a specified other manufacturer after 2021.

        • A new formulation, a vaccine, or insulin.

    • Orphan drugs.  Orphan drugs that are indicated for one rare disease or condition.

    • Low-spend drugs.  A drug for which total Parts B and D expenditures over a specified preceding period is less than $200 million, increased by an inflation factor.

How would drugs be selected for negotiation?

  • Each year, the Secretary would select for negotiation up to a specified number of negotiation-eligible drugs with the highest total Part B or D expenditures over a specified preceding 12-month period, in addition to all insulin products.  The number of drugs selected for negotiation would be cumulative.

    • 2025.  Up to 10 Part D drugs, plus insulin.

    • 2026.  Up to 15 Part D drugs, plus insulin.

    • 2027.  Up to 15 Part B or D drugs, plus insulin.

    • 2028 and each year thereafter.  Up to 20 Part B or D drugs, plus insulin.

How would the negotiated price be set?

  • “Maximum fair price”

    • The maximum fair price would be capped at a specified percentage of non-FAMP.  Specifically, the maximum fair price generally may not exceed the lower of (1) a specified percentage of non-FAMP for the first 3 calendar quarters of 2021 (or, where there is no non-FAMP for the first 3 calendar quarters of 2021, non-FAMP for the preceding year), increased by an inflation factor, or (2) the specified percentage of non-FAMP for the preceding year.

      • Maximum fair prices for long monopoly drugs, for which at least 16 years have elapsed since approval or licensure, (excluding vaccines) are capped at 40 percent of non-FAMP.

      • Maximum fair prices for post-exclusivity drugs, for which at least 12 years but less than 16 years have elapsed since approval or licensure, (excluding vaccines and drugs selected for negotiation prior to 2030) are capped at 65 percent of non-FAMP.

      • Maximum fair prices for short monopoly drugs, i.e., all other drugs selected for negotiation, are capped at 75 percent of non-FAMP.

    • For 2028 and 2029, there would be a maximum fair price floor of 66 percent of non-FAMP for small biotech drugs.

    • Factors for consideration.  In negotiating the maximum fair price, the Secretary would be required to consider certain manufacturer-specific information, such as the research and developments costs of the drug and extent to which manufacturer has recouped such costs, and information regarding unmet medical needs and alternative treatments.

What would the timeline for negotiation be?

  • Timeline for negotiation.

    • The Secretary would publish the list of drugs selected for negotiation by February 1 of the year that is two years before the year at issue.

    • The manufacturer would enter into an agreement to negotiate the price for the drug by February 28.

    • The manufacturer would submit the requisite information to the Secretary by March 1.

    • The Secretary would make an initial offer by June 1.

    • The manufacturer would accept the offer or make a counteroffer within 30 days. 

    • Negotiation would conclude by November 1.

What would happen after the negotiated price is set?

  • Offer of maximum fair price.  Starting the year at issue, the manufacturer would be required to offer the drug at the maximum fair price with respect to Medicare beneficiaries.

  • Increase in maximum fair price.  The maximum fair price would increase each year by an inflation factor.

  • Renegotiation of maximum fair price.

    • The Secretary would be required to select for renegotiation a drug that becomes a long-monopoly drug or a post-exclusivity drug.

    • The Secretary would be permitted to select for renegotiation a drug for which there is a new indication or a material change in the factors considered.

  • Cessation of maximum fair pricing.  A drug would cease to be subject to maximum fair pricing starting the year after a generic or biosimilar is comes to market. 

How would the requirements on manufacturers be enforced?

  • Civil monetary penalties (CMPs).  Manufacturers would be subject to significant CMPs for:

    • Failing to offer the maximum fair price with respect to a Medicare beneficiary.

    • Violating the terms of the negotiation agreement, including the requirement to submit the requisite information to the Secretary.

    • Knowingly providing false information.

  • Excise tax.  Manufacturers would be subject to a significant excise tax for failing to (1) timely enter into the negotiation agreement, (2) timely agreeing to a maximum fair price, or (3) timely submitting the requisite information to the Secretary.

Other provisions of note

  • The payment amount under Part B for negotiated drugs would be 106 percent of the maximum fair price.

  • The negotiated price under Part D for negotiated drugs would be the maximum fair price. 

  • Part D plans would be required to include negotiated drugs on their formularies.

  • Best price under the Medicaid Drug Rebate Program for negotiated drugs would expressly include the maximum fair price.

 

Part B and Part D inflation rebates

The BBBA would require manufacturers to pay a rebate on a drug payable under Part B or D where the price of the drug increases faster than inflation.  Rebates generally would be due on, not only all Medicare, but also all commercial (but not Medicaid) units sold in a particular period, without regard to whether they were actually subject to Part B or D reimbursement, although both a Part B and a Part D inflation rebate could not be owed on the same unit.

Starting Q3 2023, Part B inflation rebates would be owed as follows:

  • Part B rebatable drug.  Drugs subject to the Part B inflation rebate would be single source drugs or biologicals payable under Part B, excluding vaccines, low Medicare spend drugs, and certain biosimilars.

  • Rebate calculation.  The rebate would be calculated as:

    • the total number of average sales price (ASP)-reported units (excluding Medicaid units) in the quarter that is two quarters before the rebate quarter;

    • multiplied by the amount (if any) by which the rebate quarter Part B payment rate exceeds the inflation-adjusted benchmark quarter Part B payment rate.   

      • The inflation-adjusted benchmark quarter Part B payment rate generally would be calculated by increasing the Part B payment rate for Q3 2021 by the percentage (if any) by which the benchmark urban consumer price index (CPI-U) (i.e., the CPI-U for September 2021) is exceeded by the CPI-U for the first month of the quarter that is two quarters before the rebate quarter.

      • For a subsequently approved drug, the payment amount benchmark quarter would be the third full quarter after the drug was first marketed and the benchmark period CPI-U would be the CPI-U for the first month of the first full calendar quarter after the drug was first marketed.

  • Beneficiary coinsurance.  For any Part B drug for which a rebate is triggered, Part B beneficiary cost sharing would be reduced to 20 percent of the inflation-adjusted benchmark quarter Part B payment amount.

  • Timeline.  A manufacturer would receive a rebate invoice within 6 months of the end of each quarter.  The manufacturer would be required to pay the rebate within 30 days.

  • CMPs.  A manufacturer that does not timely pay a rebate would be subject to a CMP in an amount at least equal to 125 percent of the rebate amount.

  • Government price reporting.  The rebates would be excluded from ASP, best price, and average manufacturer price (AMP) calculations.

Starting calendar year 2023, Part D inflation rebates would be owed as follows:

  • Part D rebatable drug.  Drugs subject to the Part D inflation rebate would be drugs or biologicals payable under Part D, excluding low Medicare spend drugs.

  • Rebate calculation.  The rebate generally would be calculated as:

    • the total number of monthly AMP-reported units (excluding Medicaid units and units subject to the Part B inflation rebate) in the rebate year;

    • multiplied by the amount (if any) by which the volume-weighted average annualized AMP for the rebate year exceeds the inflation-adjusted volume-weighted average annualized AMP for the benchmark year. 

      • The inflation-adjusted volume-weighted average annualized AMP for the benchmark year would be calculated by increasing the volume-weighted average annualized AMP for the payment amount benchmark year (i.e., federal fiscal year 2021) by the percentage (if any) by which the benchmark period CPI-U (i.e., the CPI-U for September 2021) is exceeded by the CPI-U for the January of the rebate year.

      • For a subsequently approved drug, the payment amount benchmark year would be the first full calendar year after the drug was first marketed and the benchmark period CPI-U would be the CPI-U for the first month of the first full calendar year after the drug was first marketed.

    • The Secretary would establish the rebate calculation for new formulations.

  • Timeline.  A manufacturer generally would receive a rebate invoice within nine months of the end of each year.  The manufacturer would be required to pay the rebate within 30 days.

  • CMPs.  A manufacturer that does not timely pay a rebate generally would be subject to a CMP in an amount equal to 125 percent of the rebate amount.

  • Government price reporting.  The rebates would be excluded from ASP, best price, and AMP calculations.

 

Part D benefit redesign

The Build Back Better Act would make a number of changes to Medicare Part D.  Specifically, the legislation would modify Medicare Part D coverage, effective 2024, as follows:

  • Reduce beneficiary cost sharing during the initial coverage phase, to 23 percent instead of 25 percent.
  • Eliminate the coverage gap, such that Part D beneficiaries, after having met the deductible, would proceed through an initial coverage phase followed by a catastrophic phase.
  • Reset the out-of-pocket threshold, to $2,000, increased by the “annual percentage increase in average per capita aggregate expenditures for covered part D drugs in the United States for part D eligible individuals” as determined by the Secretary each year thereafter, instead of the $6,550, as in 2021.
  • Eliminate beneficiary cost sharing in the catastrophic phase, after beneficiaries reach the out-of-pocket threshold, and reduce the Medicare reinsurance amount to 20 percent from 80 percent.
  • Reduce the beneficiary premium percentage to 23.5 percent instead of 25.5 percent of plan costs less the Medicare reinsurance amount.  As the Medicare reinsurance amount has also been reduced, it is unclear how much this would reduce premiums for beneficiaries.
  • Permitting smoothing of out of pocket costs.  A beneficiary would be able to opt to pay out-of-pocket costs on a monthly basis subject to a cap, defined as the beneficiary’s outstanding out of pocket costs for a plan year divided by the remaining months in the plan year.
  • Insulin.  Cost sharing for insulin would be set at no more than $35 in 2023, in all phases of coverage, and no more than $35 in 2024 until the patient reaches the out-of-pocket threshold (cost sharing above that threshold will be set to $0 as noted above).
  • Vaccines.  Starting in 2024, vaccines recommended by the Advisory Committee on Immunization Practices would be covered under Part D with no deductible and no coinsurance or cost sharing.

In addition, the bill would adopt a new manufacturer discount program.  This program, starting January 1, 2024, would be structured as follows:

  • Discount.  A manufacturer with an agreement with the Secretary must offer:

    1. A 10 percent discount off of the negotiated price for an applicable drug where an applicable beneficiary has incurred costs equal to or above the deductible and below the out-of-pocket threshold.

    2. A 20 percent discount off of the negotiated price for an applicable drug where an applicable beneficiary has incurred costs equal to or above the out-of-pocket threshold.

  • Applicable drugs.  An applicable drug is a covered Part D drug or biologic approved or licensed by the FDA on a prescription drug plan’s formulary, for which a prescription drug plan offers benefits, or which is covered through some exceptions process or appeal, but does not include a selected drug during a price applicability period for purposes of the negotiation program discussed previously.  Where a beneficiary who has not yet incurred costs equal to or above the annual out-of-pocket threshold is dispensed a selected drug that would otherwise have been subject to the manufacturer discount program, then the Secretary must provide the plan a subsidy of 10 percent of the negotiated price of that drug (which for such drugs would be 10 percent of the maximum fair price).
  • Applicable beneficiaries.  Applicable drugs subject to an agreement as described below can only be dispensed to a Part D beneficiary enrolled in a prescription drug plan (or a Medicare Advantage prescription drug plan) but not in an qualified retiree prescription drug plan (defined as employment-based retiree health coverage).  The beneficiary also must have incurred costs above the applicable deductible for that beneficiary to be eligible for an applicable drug.  For purposes of the definition of applicable beneficiary only, incurred costs will include “costs reimbursed through insurance, a group health plan, or certain other third-party payment arrangements, for covered Part D drugs.”
  • Agreement.  The Secretary shall establish a manufacturer agreement governing the terms of the discount program no later than January 1, 2023.  
  • Phase in for drugs dispensed to low-income subsidy beneficiaries.  Where:

    1. A specified manufacturer, defined as a manufacturer, in 2021:

      • Had a coverage gap discount agreement,

      • For which the expenditures for all drugs of that manufacturer under Part D are less than 1 percent of total expenditures under Medicare Part D, and

      • For which the expenditures for all drugs of that manufacturer under Part B are less than 1 percent of total expenditures under Medicare Part B,

    2. And the drug of that manufacturer has been dispensed to a low-income subsidy beneficiary, then

    3. The discounts under the manufacturer discount program shall be phased in:

      • From 99 percent in 2024 to 90 percent in 2028, for an applicable beneficiary that has incurred costs below the out of pocket threshold and

      • From 99 percent in 2024 to 80 percent in 2030, for an applicable beneficiary that has incurred costs at or above the out of pocket threshold.

  • Phase in for specified small manufacturers.  Where:

    1. The expenditures for a specified manufacturer, as defined previously, for a single drug of that manufacturer under Part D are equal to or exceed 80 percent of the total expenditures for the drugs of that manufacturer under Part D for 2021 that were covered under a coverage gap discount agreement in that year, then

    2. The discounts under the manufacturer discount program for an applicable drug of the specified small manufacturer dispensed to an applicable beneficiary shall be phased in according to the same percent discounts as for drugs dispensed to low-income subsidy beneficiaries.

  • Audits and enforcement.  The Secretary can audit a manufacturer with an agreement under this program.  Manufacturers that fail to provide discounted prices for an applicable drug can be subject to civil monetary penalties equal to 1.25 percent times the discount that the manufacturer should have paid under the agreement.  The Secretary may also terminate an agreement with a manufacturer for a knowing and willful violation of the terms of the agreement as established by the Secretary.

 

Other provisions

In addition to the provisions above, the BBBA would:

  • Extend Medicaid Drug Rebate Program rebate liability to drug utilization under the Children’s Health Insurance Program (CHIP).  Rebate liability already extends to drug utilization of CHIP beneficiaries whom states have elected to cover via an expansion of their Medicaid program.  Accordingly, as a practical matter, this provision would expand rebate liability to drug utilization of CHIP beneficiaries whom states have elected to cover via a standalone CHIP program.
  • Prohibit the Secretary from implementing the final rule entitled Anti-Kickback Statute Safe Harbor Protections for Prescription Drug Rebates, published November 30, 2020.  We previously published an alert on this final rule, available here.

 

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We will monitor this bill as it progresses through the Senate and, if it becomes law, as it is implemented.  As always, it is important that you carefully review the proposed legislation to identify all issues relevant to your organization.

 

Authored by Alice Valder Curran, Ken Choe, Melissa Bianchi, Stuart Langbein, Beth Roberts, Beth Halpern, Ron Wisor, Cybil Roehrenbeck, Kathleen Peterson, Anna Weinstein, Samantha D. Marshall, Ashley Ifeadike, and Erin Meyers

Contacts
Alice Valder Curran
Partner
Washington, D.C.
Ken Choe
Partner
Washington, D.C.
Melissa Bianchi
Partner
Washington, D.C.
Stuart Langbein
Partner
Washington, D.C.
Beth Roberts
Partner
Washington, D.C.
Beth Halpern
Partner
Washington, D.C.
Ronald Wisor
Partner
Washington, D.C.
Cybil Roehrenbeck
Partner
Washington, D.C.
Kathleen Peterson
Counsel
Washington, D.C.
Samantha Marshall
Senior Associate
Washington, D.C.
Anna Weinstein
Senior Director
Washington, D.C.

 

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