As the Trump administration dropped its rebate elimination proposal and touts plans to move to an international pricing index, a bipartisan Senate bill could exert greater influence.

The Prescription Drug Pricing Reduction Act 2019, released July 23, carries a potential sea change for drug pricing in Medicare and Medicaid. With White House support and opposition from the Pharmaceutical Research and Manufacturers of America and the U.S. Chamber of Commerce, the final bill is unlikely to look like the one released by Senate sponsors Chuck Grassley (R-Iowa) and Ron Wyden (D-Oregon). The package of proposals focuses on Medicare and Medicaid, although some commercial market impact should be felt.

The bill includes a laundry list of changes and proposals to drug pricing for Medicare and Medicaid. It does not include direct negotiation for Part D drugs—a Democratic goal and pharmacy’s often-touted red line. While Democratic senators already have discussed an amendment to allow negotiation, it is unlikely to make the final bill.

As for what made the cut, the inflationary rebates proposal for Part B and biologic drugs have already become the most controversial piece of this bill. The rebates would result in the biggest chunk of potential savings. The inflation-rebate provision is expected to impact the commercial market and lower costs, albeit tangentially.

The Congressional Budget Office pegs the 10-year savings at $85 billion in Medicare through Part D redesign and rebate policy changes, $27 billion in out-of-pocket costs for beneficiaries through reduced cost-sharing, and $5 billion in premium reductions.

Here’s how some of the major provisions break down on market segments:

Medicare Part D

The prescription drug benefit would undergo some notable changes. After a $415 deductible in which members pay all costs, members initially pay 25 percent coinsurance up to a $3,100 out-of-pocket maximum. The donut hole would be eliminated, and manufacturer responsibility would shift to the catastrophic phase. Under the new catastrophic phase, Medicare pays 20 percent, plans pay 60 percent, and drug manufacturers pay 20 percent.

The bill would also require brand and biologic manufacturers to repay Medicare if list price increases exceed the Consumer Price Index for All Urban Consumers. Manufacturers would have to justify a drug that costs more than $10, doubles in a year or triples in five years, and a new drug that launches at a price that pushes patients above their out-of-pocket drug spending cap, among others.

Medicare Part B

Part B includes many expensive therapies, and the inflation-rebate piece would have major impact. Manufacturers would pay rebates when drug prices outstrip the rate of inflation in each quarter that the price is higher than an inflation-adjusted average sale price. Provider drug payments would still be based on 100 percent of ASP plus 6 percent when that information is available. For new drugs without an available ASP, CMS would use an add-on payment of no more than 3 percent based on wholesale acquisition cost. Provider-add-on payments would be capped at $1,000 as of Jan. 1, 2021.

To incentivize biosimilars, provider payment will be set at 100 percent ASP plus an add-on of 8 percent (up from 6 percent) of the ASP for the reference biologic for five years.


The bill would lift the Medicaid rebate cap, which set the maximum rebate at 100 percent of a drug’s average manufacturer price. State Medicaid programs could pursue value-based contracts for gene therapies, the costs of which can exceed $1 million per patient. States could stagger payments over five years. The VBCs would have to agree to not increase federal Medicaid payments. Other Medicaid provisions would remove authorized generics from average manufacturer price determinations, which would keep rebates based on brand drug costs, and would eliminate PBM use of spread pricing in Medicaid.

What Happens Next:

The bill won’t be heard before the August recess, but it’s going to be front and center when Congress returns. A drug pricing proposal from House Speaker Nancy Pelosi is expected in September as well, and the Senate bill could be packaged with a larger series of healthcare reforms, such as surprise billing legislation.

What pieces might survive are unclear, and the inflation-rebate piece could be the first to go since it might skew too close to price controls for Senate Republicans. Both sides of the aisle are hearing about drug pricing. An actual bipartisan bill might have a chance in a severely divided Congress during a non-election year—if it lingers until 2020, forget it.

As such, pharma might have a fight on its hands with the myriad of proposals stuffed into the Senate’s Rx pricing bill.

Bill Melville is a principal analyst at DRG and national healthcare policy expert whose work appears in Health Plan Analysis and Market Overviews. Follow him @BillMelvilleDRG

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