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Drug prices will make headlines again as Senate Democrats push forward on price reforms

Senate Democrats appear to be making progress in pushing forward a set of politically popular drug price reforms. A detailed plan is yet to be released. However, reports suggest that the plan is similar to provisions contained in the Build Back Better legislation passed by the House in November 2021.

Senate leaders will soon submit a request to Senate lawmakers to review the legislative plan to determine whether it can be passed using the budget reconciliation process.

Key provisions allow for the negotiation of prices for a limited number of high-cost drugs covered under Medicare Part B (physician-administered) and Part D (outpatient); imposing inflation discounts to limit annual increases in the prices of existing drugs in Medicare; limiting out-of-pocket spending for Medicare beneficiaries as part of Part D benefit design restructuring; Increase premium and co-pay assistance for low-income Medicare beneficiaries.

Price improvements

An emerging Senate deal would authorize Medicare to directly negotiate prices for narrowly defined drugs starting in 2023. In the House bill passed late last year, the start date is 2025. It is unclear what was revealed about the Senate. 2023 indicates when the consultation process will begin or when the actual drug pricing regulations will go into effect.

Although the Senate plan references the House bill, it does not reveal the exact number of drugs that would be affected. The House bill would allow Medicare to negotiate prices 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). The negotiations will not apply to 10 single-source brand-name drugs in 2025, 15 in 2026 and 2027, and 20 (in 2028 and later years).

These drugs are selected from the 50 drugs with the highest total Medicare Part D spending and the 50 drugs with the highest total Medicare Part B spending.

An important point to note is that single-source brand-name drugs do not have generic or biosimilar competitors. And, the statute exempts prescription drugs that 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 of “small biotech drugs,” which protects small biotech companies from government negotiation and price caps. Small firms will be excused from negotiating prices with Medicare until 2028.

To illustrate the impact of the House bill, let’s consider small-molecule drugs. The statute establishes an upper limit for the negotiated price of such drugs equal to 75% of the average non-federal producer price between 9 and 12 years after the drug’s approval; 65% for drugs between 12 and 16 years after approval; And 40% for drugs over 16 years have been removed from their approval date.

The drug industry does not like to hear the phrase price controls, as these limit their ability to freely set prices in the US market. Estimates of the negative impact drug pricing regulations have on R&D investment and innovation in the pharmaceutical industry vary enormously.

Obviously, inflationary discounts on existing drug list prices that exceed inflation, as well as Medicare’s price controls on all insulin products and a limited set of non-insulin drugs, will have an impact. However, one needs to be aware of the limited scope of such price controls, especially those placed on non-insulin products.

The Kaiser Family Foundation conducted a simulation of how drug price negotiations work in practice. In the hypothetical scenario that the proposal would be fully implemented this year (2022), as outlined in the House bill, the study found 42 insulin therapeutics, along with at most 20 non-insulin drugs and biologics (18 Part D and two Part D). B products) qualify for possible opt-in during the Medicare negotiation process at this time. Note that only 10 of these will eventually be selected for consultation in the first year of implementation of the legislation.

Perhaps more importantly, most of the 20 non-insulin drugs that are eligible for Medicare consultation today will not be in 2025. Among the high-profile drugs cited in the report are the blood thinner Xarelto (rivaroxaban), Soliris (eculizumab), the drug for paroxysmal nocturnal hemoglobinuria, the multiple myeloma drug Revlimid (lenalidomide), and Humira (adalimumab), which targets autoimmune disorders. All four drugs will have generic or biosimilar competition by 2025. Accordingly, none of them are subject to Medicare price controls.

Aside from the fact that only a few drugs are eligible for Medicare consultation, the pricing of new drugs is not affected by the legislation.

Restructuring Medicare Part D

From a political perspective, perhaps the most important provision included in the legislation is the cap on out-of-pocket costs for Medicare beneficiaries, which will be set at $2,000 in 2023. In addition, Medicare beneficiaries’ out-of-pocket total outpatient drug costs were reduced from 25% to 23%. Medicare beneficiaries are certainly an important constituency for members of the House and Senate on both sides of the aisle. Rising Medicare beneficiaries’ out-of-pocket costs impose a heavy financial burden. Currently, there is no limit on such expenditure.

Currently, more than 1.5 million Medicare beneficiaries are in the Part D benefit catastrophe phase, meaning they have already spent $3,250 on prescription drugs. This includes the deductible and patient cost-sharing at the initial coverage level. At this point, their out-of-pocket co-insurance drops to 5%, but there is no cap on the beneficiary’s spending. As we all know, specialty drugs can be very expensive, and this 5% co-insurance can easily translate into thousands of extra dollars for those on expensive prescriptions.

The House bill would make major changes to the way costs are managed during the disaster phase, which could lead to lower prices for specialty drugs. The government’s share of total costs above Medicare Part D’s catastrophic limit (and beneficiary spending limit) will go from 80% to 20% for brand-name drugs and 40% for generics. Pharmacy benefit managers (PBMs) and health plans are responsible for a significantly higher share of the cost, with the percentage rising from 15% to 60% for both brand and generic products. This suggests that PBMs and health plans will have to strike a hard bargain, especially for high-priced (branded) specialty drugs. They are not able to offload nearly as much cost onto the beneficiaries. And, they couldn’t rely on the government as reinsurer to pick up the higher cost tab in the catastrophic phase of the Part D benefit. Additionally, the House bill would impose a 20% manufacturer’s price rebate on brand-name drugs during the disaster phase.

It is my opinion that the restructuring of Medicare Part D will have a greater impact on the prescription drug market as a whole and (branded specialty) drug prices, in particular, than the Medicare price negotiation provisions.

Drug price reform is making news again. It’s too early to tell if Democrats will succeed this time. His razor-thin majority in the Senate — which is due to the fact that the vice president acts as a tie-breaker — suggests that losing the support of just one senator would nix the deal. Nevertheless, there is momentum to do something ahead of the midterms. Perhaps we will soon see a restructuring of Medicare Part D, which will significantly reduce the burden of out-of-pocket costs for Medicare beneficiaries and realign drug cost management by payers, pharmaceutical manufacturers, and Medicare, as well as Medicare’s role. Consultants for insulin products and a limited set of non-insulin medications.

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