Congressional Pushback on Drug Pricing

Rick Kelly and Nisha Desai review the proposals in the Pharmaceutical Drug Pricing Reduction Act (PDPRA) with the greatest potential impact.

Just when the Trump administration’s drug pricing blueprint has suffered some blows, the Republican and Democratic leaders of the Senate Finance Committee have jumped into the fray. Chairman Chuck Grassley (R-Iowa) and Ranking Member Ron Wyden (D-Oregon) have introduced the details of their far-reaching legislation, the Pharmaceutical Drug Pricing Reduction Act (PDPRA), with its 31 proposals spanning Medicare Part D, Medicare Part B, and Medicaid.  And it’s moving fast - announced on July 23^rdand marked up by the full committee on July 25^th, it has now progressed to consideration by the full Senate. This act could be quite impactful as well; of the 31 proposals, six would result in monumental changes to Part B and Part D.

The most impactful Part D proposals 

The first of the Part D proposals is an effort to keep drug prices from increasing faster than inflation. Beginning in January of 2022, a rebate would be required whenever the WAC for a branded Part D drug or biologic increases more than the Consumer Price Index (CPI for Urban Consumers in this case). Rebates would be paid to CMS and therefore would not change formulary status at PDP or MA-PD plans. Due to the size of the Part D market, these rebates would effectively limit price increases for self-administered drugs to the CPI-U. Pharma companies would need to predict inflation rates and manage price increases within that limit to avoid significant rebates.

The other impactful change to Part D involves a shift in cost sharing for pharma companies. Currently, pharma companies’ share of the costs for brand name drugs is 70% within the doughnut hole. This share, provided as a discount, begins when the cumulative cost of a drug reaches $3,820 and ends when it reaches $8,140. Therefore, for a drug that costs more than $8,140 per year, there is little incentive for a pharma company to limit price increases. The new rule would shift cost sharing for pharma companies to 20% during the catastrophic phase. Since there is no cap in this phase, any price increase would result in an equivalent increase in the Part D discount.  The impact of this would be significant if a pharma company has brands with substantial Medicare volume. Thoughtful pricing strategy for a new drug would be required to balance revenue and Part D discounts.

The most impactful Part B proposals

Currently, there are two proposals aimed at lowering costs for Part B drugs. The first would establish a new rebate, and the second, a new refund from pharma companies. The first proposal, which would be effective in January of 2021, is similar to the inflation-based rebate proposal for Part D drugs. For Part B, this would be accomplished by requiring a rebate from the pharma company equal to the amount that the Average Sales Price (ASP) had increased over inflation costs. In addition, there would be a civil monetary penalty for failure to comply with these regulations. When considering a price increase, pharma companies would need to analyze whether or not the increase in revenue from non-Medicare businesswould be larger than the Medicare rebate. In some cases, the inflation-based rebate would offset any benefits of price increases for Part B drugs.

The second proposal would require a refund for the cost of the unused portion of drug in single-dose vials. Payment would only be required if the cost of the unused units of a drug exceeds 10% of the total Medicare cost for that drug. Medicare would calculate the amount and “charge” the pharma company accordingly. There would also be a penalty for failure to comply with this regulation. This new rule would be effective in January of 2021. The goal of this second proposal would be to eliminate waste-related costs and to encourage pharma companies to manufacture with more efficient packaging. Pharma companies would need to evaluate the trade-off between the amount of the refund and the cost of re-configuring packaging to minimize waste.

Two other Part B proposals in the proposed legislation would decrease providers’ payments for Part B drugs. The first of these would require that the value of a pharma company’s coupons and copay cards be included in the calculation of ASP. Adding the value of coupons and copay cards to current reductions (volume, prompt-pay, cash discounts, and non-Medicaid rebates) would further lower ASP. A decrease in ASP would also decrease provider reimbursement, which could lower demand â”€and therefore sales â”€of high-cost Part B drugs. If adopted, this change would begin in July of 2021. Pharma companies would need to evaluate the net effect on demand of offering coupons and copay cards, and the resulting decrease in provider reimbursement.

The second payment proposal would impact pharma companies that sell or compete against biosimilars. It would establish a new Medicare payment method for these drugs: ASP of the biosimilar plus 8% of the comparable brand’s ASP (instead of the current 6%). This payment method would be in effect for 5 years, beginning on January 1, 2020. For biosimilars launched during that timeframe, this payment method would be used for 5 years post-launch. Since this could increase demand for biosimilars, it could increase sales for pharma companies with a biosimilar portfolio. For companies competing against a biosimilar, the opposite would be true. Implementing both of these proposals would double the impact.

Additional proposals in the PDPRA

There are other proposals in the PDPRA that impact pharma companies. These involve minor policy changes that affect a small portion of revenue. They include minor changes in ASP calculations, changes in provider reimbursement for Part B, increased transparency of pricing arrangements, expedited enrollment of LIS beneficiaries in Part D, and small changes in Medicaid rebate calculations. The rest of the 31 proposals are unlikely to have significant, direct effects on pharma companies. See a full description of the PDPRA here.

While the Prescription Drug Pricing Reduction Act is just beginning a potentially long legislative journey, some of the proposals under consideration, if implemented, could have a significant influence on pharmaceutical pricing decisions. If the proposals are enacted, pharma companies would, at minimum, have to be more thoughtful about assessing the effects of potential price increases on revenue. If these new rules spill over into commercial insurance, annual double-digit price increases could well become a thing of the past. 

Rick Kelly and Nisha Desai, Cyan Health.