Weekly Policy Update: Agreement Reached on Drug Pricing Policies within the Budget Reconciliation Package
By: Colorado BioScience Association Date: 11/05/2021
Late last week, the White House released a framework for the budget reconciliation package, known as the Build Back Better Act. The original package had a total cost of $3.5 trillion. The latest framework totals around $1.75 trillion. Notably, the White House’s framework did not include provisions related to drug pricing. However, House Democrats struck a deal earlier this week to include pricing provisions.
House Speaker Nancy Pelosi is planning on holding a vote on the package this week, with drug pricing among several policy areas including paid family and medical leave that House Democrats have been working on adding back into the package. The Speaker’s plans to hold a vote may be delayed due to a request by five centrist Democrats to have the Congressional Budget Office or the Joint Committee on Taxation to provide an official cost estimate of the legislation. These members include Kurt Schrader, who is a co-sponsor of The Reduced Costs and Continued Cures Act, and Josh Gottheimer, who has been advocating for the removal of changes to the Orphan Drug Tax Credit (ODTC). Even with a potential delay with voting in the House, Senate Majority Leader Chuck Schumer is looking to begin debate on the package on November 15.
Below is an overview of the agreement on prescription drugs. It is important to note that the legislative language is still in a fluid state and specific details regarding the provisions are subject to change. The policy is structured around three main provisions:
- Providing the authority, the mandate, and the tools for Medicare to negotiate drug prices outside their initial exclusivity period.
- Redesigning the Medicare Part D benefit to protect seniors from high out-of-pocket spending.
- Instituting rebates for drug prices that grow faster than inflation.
Negotiation: Under this policy, Medicare will negotiate prices for a subset of drugs. The process begins with the Secretary of HHS selecting from a list of the highest gross spending drugs in each of the Part B and Part D programs that are single-source drugs outside of their initial exclusivity periods – nine years for small molecule drugs and 12 years for biologics – as well as insulin products. The proposal specifies that the Secretary will negotiate up to 10 drugs for 2025. In each following year, that number will increase until reaching up to 20 drugs for 2028 and beyond.
After selecting the drugs for negotiation, manufacturers will submit information about the selected drug, such as their research & development costs, prior federal financial support, the extent to which the drug addresses an unmet need, whether the drug represents a therapeutic advance beyond existing treatments, and more. The Secretary then uses this information to engage in a back and forth with the manufacturer to arrive at an agreed-to fair price. During this process, the Secretary is explicitly directed to consider the innovation that the selected drug represents. The negotiated price cannot exceed the following:
- 75% of its 2021 non-federal average manufacturer price for a small molecule drug fewer than 12 years but more than nine years past initial exclusivity.
- 65% of its 2021 non-federal average manufacturer price for a drug 12 – 16 years past initial exclusivity.
- 40% of its 2021 non-federal average manufacturer price for a drug more than 16 years past initial exclusivity.
Inflation Rebates: The base year for the inflation rebate is 2021. The rebate is calculated based on total drug units sold.
Medicare Part D Redesign: The policy creates an annual out-of-pocket patient spending cap of $2,000 and allows those costs to be smoothed over the calendar year. Insulin co-pays are capped at $35 per month. In addition, the beneficiary share of costs in the initial coverage phase will be decreased from the current 25%; lawmakers will include a placeholder reduction and work expeditiously to finalize a design to reduce.
Special Rules for Small Biotech Companies: The policy contains a number of special rules for the small biotech market.
- Exempts from negotiation all drugs that contribute less than $200 million in Medicare spending.
- Excludes companies that meet a definition of small biotech from negotiation for the first three years, negotiated pricing applies after 2028.
- Phases in any reduction from negotiations for the first two years negotiated price applies for companies that meet a definition of small biotech.
- Phases in manufacturer liability in the Part D redesign over six years for companies that meet a definition of small biotech.
Small biotech is defined as a company where one drug makes up 80% of the manufacturer’s Medicare revenue, but that drug constitutes less than 1% of Medicare drug spending.
CBSA will continue to engage with the Colorado Congressional delegation and individual members as the budget reconciliation package moves through Congress. This engagement is driven by our commitment to advancing policies that increase affordability for patients while supporting a pro-innovation environment for life sciences in Colorado. Our outreach will now strategically focus on Senators Michael Bennet and John Hickenlooper related to the removal of changes to the Orphan Drug Tax Credit (ODTC). This advocacy will be in addition to continued engagement with both offices on the drug pricing policies outlined above.