Drug Prices Make Headlines Again As Senate Democrats Push Forward Pricing Reforms

Healthcare Drug Prices Make Headlines Again As Senate Democrats Push Forward Pricing Reforms Joshua Cohen Contributor Opinions expressed by Forbes Contributors are their own. I write about prescription drug value, market access, healthcare systems, and ethics of distribution of healthcare resources New! Follow this author to improve your content experience. Got it! Jul 1, 2022, 10:00am EDT | Share to Facebook Share to Twitter Share to Linkedin WASHINGTON, DC: Senator Joe Manchin (D-WV) (L) and Senate Majority Leader Charles Schumer (D-NY) are .

. . [+] discussing ways of pushing forward drug pricing legislation.

(Photo by Chip Somodevilla/Getty Images) Getty Images Senate Democrats appear to be making progress on pushing forward a set of politically popular drug pricing reforms. A detailed plan has yet to be released. However, reports suggest the plan would be similar to provisions included in Build Back Better legislation, which the House passed in November 2021.

Senate leaders will soon submit a request to the Senate parliamentarian to review the legislative plan to assess whether it could be passed using the budget reconciliation process. The key provisions would allow Medicare to negotiate prices for a limited number of high-cost drugs covered under Medicare Part B (physician-administered) and Part D (outpatient); impose inflationary rebates to limit annual increases in the prices of existing drugs in Medicare; cap out-of-pocket spending for Medicare beneficiaries as part of a restructuring of Part D benefit design; enhance premium and co-pay assistance for lower-income Medicare beneficiaries. Pricing reforms The emerging Senate deal would empower Medicare to directly negotiate the prices of a narrowly defined set of prescription drugs, beginning in 2023.

In the House bill which passed late last year, the start date is 2025. It’s unclear from what’s been revealed about the Senate plans whether 2023 denotes when the negotiation process itself would begin, or when the actual drug pricing provisions would take effect. Though the Senate plan references the House bill, it doesn’t divulge precise numbers of drugs that would be impacted.

The House bill would allow Medicare to negotiate prices for all insulin products and a small number of high-cost drugs covered under Medicare Part D (starting in 2025) and Part B (starting in 2027). Negotiations would apply to no more than 10 single-source brand-name drugs in 2025, 15 in 2026 and 2027), and 20 (in 2028 and later years). MORE FOR YOU CDC: Salmonella Outbreak Has Left 279 Ill, 26 Hospitalized In 29 States Canadians End Up In ICU After Attending ‘Covid Party’ White House Mandates Pfizer Vaccines for Millions of Citizens .

. . Before the FDA Clinical or Safety Reviews Have Been Made Public These drugs would be selected from among the 50 drugs with the highest total Medicare Part D spending, and the 50 drugs with the highest total Medicare Part B spending.

What’s important to note is that the single-source brand-name drugs would have to lack generic or biosimilar competitors. And, the legislation exempts from negotiation drugs which are less than 9 years (for small-molecule drugs) or 13 years (for large-molecule biologics) from their FDA-approval date. The legislation also created a carveout for “small biotech drugs,” which protects smaller biotechnology companies from government negotiation and price caps.

Smaller firms would be excused from having to negotiate prices with Medicare until 2028. To illustrate the House bill’s impact, let’s consider small-molecule drugs. The legislation establishes an upper limit for the negotiated price of such drugs equal to 75% of the non-federal average manufacturer price, between 9 and 12 years after the drugs’ approval; 65% for drugs between 12 and 16 years post approval; and 40% for drugs more than 16 years removed from their approval date.

The drug industry doesn’t like to hear the phrase price controls, as these would limit their ability to freely set prices in the U. S. market.

Estimates vary enormously regarding how much of a negative impact drug pricing provisions would have on R&D investment and innovation in the pharmaceutical industry. Certainly, the inflationary rebates on list prices of existing drugs that exceed inflation, as well as Medicare’s price controls on all insulin products and a limited set of non-insulin drugs would have an impact. But, one needs to be cognizant of the limited scope of such price controls, especially those placed on non-insulin products.

The Kaiser Family Foundation carried out a simulation of how drug price negotiations would work in practice. In the hypothetical scenario that the proposal – as stipulated in the House bill – were to be fully implemented this year (2022), the study found that besides 42 insulin therapeutics at most 20 non-insulin drugs and biologics (18 Part D and two Part B products) would qualify to be possibly selected in the Medicare negotiation process at this point in time. Keep in mind that only 10 of these would ultimately be chosen for negotiation in the first year of the legislation’s implementation.

Perhaps more importantly, many of the 20 non-insulin drugs that would be eligible for Medicare negotiation today, would not be in 2025. Among the high-profile drugs mentioned in the report are the blood thinner Xarelto (rivaroxaban), Soliris (eculizumab), indicated for paroxysmal nocturnal hemoglobinuria, the multiple myeloma drug Revlimid (lenalidomide), and Humira (adalimumab), which targets auto-immune disorders. All four drugs will have generic or biosimilar competition by 2025.

Accordingly, none of them would be subject to Medicare price controls. Besides the fact that so few drugs would even eligible for Medicare negotiation, price setting of new drugs would not affected by the legislation at all. Restructuring of Medicare Part D From a political perspective, perhaps the most important provision contained in the legislation is the cap on out-of-pocket spending by Medicare beneficiaries, which would be set at $2,000 in 2023.

In addition, Medicare beneficiaries’ out-of-pocket share of total outpatient drug costs has been lowered from 25% to 23%. Medicare beneficiaries are obviously an important constituency for House and Senate members on both sides of the aisle. Rising Medicare beneficiary out-of-pocket expenses impose a heavy financial burden.

Currently, there is no cap on such spending. At present, there are more than 1. 5 million Medicare beneficiaries in the catastrophic phase of the Part D benefit, which means they’ve already spent $3,250 out-of-pocket on prescription drugs.

This includes the deductible and patient cost-sharing in the initial coverage phase. At this point, their out-of-pocket co-insurance drops to 5%, but there is no cap on beneficiary spending. As we know, specialty drugs can be very costly, which implies the 5% co-insurance can easily translate into thousands of additional dollars for those on expensive prescriptions.

The House bill makes key changes to the ways in which costs are managed in the catastrophic phase, which in turn could lead to a lowering of the prices of specialty drugs. The government’s share of total costs above Medicare Part D’s catastrophic threshold (and beneficiary spending cap) would go from 80% to 20% for brand-name drugs and to 40% for generics. Pharmacy benefit managers (PBMs) and health plans would be responsible for a significantly greater share of costs, as the percentage would rise from 15% to 60% for both branded and generic products.

This implies that PBMs and health plans would have to strike a harder bargain, particularly with respect to high-priced (branded) specialty drugs. They wouldn’t be able to offload nearly as much of the costs onto beneficiaries. And, they couldn’t rely on the government as reinsurer to pick up most of the tab of costs in the catastrophic phase of the Part D benefit.

In addition, the House bill imposes a 20% manufacturer price discount on brand-name drugs in the catastrophic phase. It is my view that the restructuring of Medicare Part D would have a much greater impact on the prescription drug market as a whole and (branded specialty) drug prices, in particular, than the Medicare price negotiation provisions. Drug pricing reform is making headlines once again.

It’s too early to tell whether Democrats will succeed this time around. Their razor-thin majority in the Senate – which is only due to the fact that the Vice President serves as a tie-breaker – implies that losing the support of just one Senator would nix the deal. Nevertheless, there is momentum to get something done ahead of the mid-terms.

Perhaps we will soon see a restructuring of Medicare Part D, which would substantially lower the out-of-pocket cost burden of Medicare beneficiaries and realign drug cost management by payers, pharmaceutical manufacturers, and Medicare, in addition to Medicare taking on the role of negotiator for insulin products as well as a limited set of non-insulin drugs. Follow me on Twitter . Joshua Cohen Editorial Standards Print Reprints & Permissions.