Drug pricing reform has been gaining momentum, with several proposals from Congress introduced over the last few years.^1,2 Last November, the U.S. House of Representatives passed the Build Back Better (BBB) Act, which included several drug pricing provisions, but the bill stalled in the Senate.³ With the midterm elections closing in quickly, Democrats are attempting to revive a modified version of BBB, which could include similar drug pricing provisions.

On July 6, 2022, Senator Charles Schumer (D-NY) and the Senate Finance Committee publicly released new Prescription Drug Pricing Reform (PDPR) language.⁴ The key provisions are similar to what was proposed by BBB, with the following key components only available to Medicare beneficiaries:

• Drug pricing negotiation
• Part D benefit redesign
• Inflation-based rebates

This article explores some of the key provisions of the new proposal, highlighting changes relative to the Senate Finance Committee version of BBB released in December 2021. Please note that the Senate Finance Committee’s proposal is in draft form and likely to change as Congress considers it further. For a detailed summary of the drug pricing provisions in the version of BBB passed by the House in November 2021, please refer to the summary found at: https://www.milliman.com/en/insight/the-build-back-better-act-medicare-parts-b-and-d-key-changes.

We summarize the provisions of the PDPR language in the sections below. We note deviations from the Senate Finance Committee version of BBB in italics.

Drug price negotiations

PDPR has similar provisions to both the House and Senate Finance Committee versions of BBB, which would establish the ability for the U.S. Department of Health and Human Services (HHS) Secretary to negotiate a subset of Part D and Part B drugs, provided they meet certain criteria, e.g., high-spend and a certain number of years since U.S. Food and Drug Administration (FDA) approval. The framework of the negotiation provisions is largely consistent with the 2021 versions of BBB.

• Timeline for negotiated price availability and negotiations: 2026 would be the first year negotiated prices for select drugs are available in Part D while 2028 is the first year negotiated prices would be available in Part B. Negotiation would begin two years prior to negotiated prices becoming available, starting in February of 2024 for the 2026 negotiation cycle. Under BBB, 2025 was the first year both Part D and Part B drugs would have negotiated prices.
• Negotiation-eligibility and selection criteria: Drugs could be selected for negotiation if they are in the highest 50 drugs (measured by spend) or single-source drugs for 12 months preceding the time of negotiation for Part D and Part B separately.
• The drugs selected for negotiation would be cumulative and increase each year. In 2026, 10 Part D drugs would be selected, followed by the selection of 15 Part D drugs in 2027, a combined 15 Part D and Part B drugs in 2028, and a combined 20 Part D and Part B drugs thereafter. The number of drugs selected is delayed one year relative to BBB.
• Small-molecule drugs and biologics would be negotiation-eligible seven and 11 years after approval, respectively. BBB set the earliest timeframe a drug could be negotiated to be nine and 13 years from approval for small-molecule drugs and biologics, respectively.
• Minimum negotiated discounts: Drugs selected for negotiation would be subject to certain minimum negotiated discounts. The minimum discount would be equal to the lesser of:
• The resulting price using a minimum defined discount from non-federal average manufacturer price (non-FAMP) based on the length of time since FDA approval:
• 25% for short monopoly drugs (less than 12 years since approval)
• 35% for extended monopoly drugs (12-16 years since approval)
• 60% for long monopoly drugs (greater than 16 years since approval)
• And the weighted average negotiated price net of all price concessions from prior year
• Exclusions: Drugs excluded from negotiation eligibility include:
• Orphan drugs that treat rare conditions
• Low-spend drugs, defined as having less than $200 million of Medicare spending in 2021, indexed for inflation to the year prior to selection
• Plasma-derived products
• “Small biotech” drugs, defined as drugs that comprise less than 1% of Part D or Part B spending and that comprise more than 80% of the manufacturer’s expenditures within Part D or Part B as of 2021, would be excluded from negotiation eligibility though 2028 with maximum discounts of 34% in 2029 and 2030. Small biotech exclusions are consistent with BBB, though they begin one year later for all noted aspects.
• Potential delay for negotiation of biologics: PDPR includes the ability to delay negotiation for biologics for up to two years if the HHS Secretary determines there is a high likelihood of a biosimilar entering the market. These drugs would still count toward the number of negotiation-eligible drugs. This provision was not included in BBB.
• Insulin negotiation: Insulins fitting all eligibility criteria would be negotiation-eligible and would contribute toward the annual maximum number of negotiation-eligible drugs. Under BBB, all insulins could be selected for negotiation in addition to the maximum number of negotiation-eligible drugs.
• Penalties for noncompliance and rebates: Manufacturers would be subject to penalties if they do not meet the terms of PDPR’s negotiation provisions.
• Manufacturers would pay a variable tax between two and 19 times daily sales if they decline to sign an agreement for a maximum fair price.
• Manufacturers would pay 10 times the difference in actual and negotiated price, per unit dispensed, for failure to provide eligible entities the maximum fair price.
• Manufacturers of selected biologics that have their negotiations delayed would be required to pay a rebate to the government if the biosimilar does not launch during the one- or two-year window. This rebate would be either 75% (Part D) or 80% (Part B) of the differential between actual prices and the negotiated price that was delayed. This provision was not included in BBB.
• Calculation of average manufacturer price (AMP) and best price: Maximum fair prices are excluded from the calculation of AMP but included in the calculation of best price. BBB included negotiated prices in the calculation of best price but did not include a provision to exclude negotiated prices from AMP.

Figure 1 summarizes the key similarities and differences between PDPR and the Senate Finance Committee version of BBB.

Figure 1: Drug price negotiation

Note: Bold wording denotes a change in the provisions of PDPR relative to BBB.

Medicare Part D redesign

PDPR includes a provision that restructures certain aspects of the Medicare Part D benefit design, and many of the proposed changes mirror BBB. Most aspects of the redesign would begin in 2025.

• Maximum beneficiary out-of-pocket (MOOP):
• This proposal establishes an annual MOOP of $2,000.
• The out-of-pocket (OOP) accumulator includes other forms of health insurance enhancements, which impact beneficiary accumulation for Employer Group Waiver Plans (EGWPs).
• Federal reinsurance:
• This proposal would decrease the federal reinsurance percentage from 80% for all drugs to 20% for applicable (typically brand) drugs and 40% for non-applicable (typically generic) drugs.
• Manufacturer discount program:
• For non-low-income (NLI) beneficiaries, the manufacturer discount payments would reflect 10% of applicable drug costs above the deductible and below MOOP, and 20% of applicable drug costs above MOOP.
• For low-income (LI) beneficiaries, the program would be phased in:
• Above deductible and below MOOP: 1% (2025), 2% (2026), 5% (2027), 8% (2028), and 10% (2029)
• Above MOOP: 1% (2025), 2% (2026), 5% (2027), 8% (2028), 10% (2029), 15% (2030), and 20% (2031)
• Phase-in is delayed by one year relative to BBB.
• The phase-in schedule also applies to specified small manufacturers, defined as manufacturers with 80% of their portfolios’ Part D expenditures from a single drug. This applies to all income levels.
• The manufacturer discount program would not apply to drugs selected for price negotiation.
• Premium stabilization:
• The Part D national average member premium would continue to equal 25.5% of the total program cost (national average bid amount plus reinsurance). In BBB, the Part D national average member premium was revised from 25.5% of the total program cost to 23.5%.
• Premium increases would be capped at +6% per year beginning in 2024. Starting in 2030, the +6% premium change cap would still apply; however, there would be a minimum of 20% of the total program cost for the national average member premium calculation (relative to the 25.5% expected without any premium change cap). In BBB, the premium cap was set at +4% rather than +6% and temporary (from 2023 to 2027), rather than indefinitely.
• Maximum monthly cap on cost sharing:
• Beneficiaries would have the option to “smooth” cost sharing over the course of the year instead of following the standard benefit design.
• Beneficiary cost sharing:
• Unlike BBB, the PDPR language maintains the current NLI beneficiary cost sharing between the deductible and MOOP at 25% (instead of decreasing it to 23%) and does not include a cap for out-of-pocket costs for insulin products.

Figure 2 summarizes the key similarities and differences between PDPR and the Senate Finance Committee version of BBB.

Figure 2: Medicare Part D benefit redesign

Note: Bold wording denotes a change in the provisions of PDPR relative to BBB.

Drug inflation rebates

The draft language includes a provision for rebates to be paid by manufacturers in cases when single-source brand and biologic drug prices increase faster than inflation. This provision applies to utilization for physician-administered and retail drugs in the Medicare and commercial markets. Some key items include:

• Effective date: Inflation rebates would go into effect in January 2023 for Part B drugs and October 2022 for Part D drugs. BBB had proposed start dates of January 2023 for both Part B and Part D drugs.
• Rebate definition: Rebates would be calculated as the difference between a drug price increase and inflation multiplied by units not provided to state title XIX programs (such as Medicaid). Drug price would be benchmarked at July 2021 for Part B drugs and January 2021 for Part D drugs, and the inflation is benchmarked at the Consumer Price Index for All Urban Consumers (CPI-U) as of January 2021 (both Part B and Part D).
• Reporting requirements: The HHS Secretary would report rebates owed by manufacturers on a quarterly basis within six months of quarter-end for Part B and nine months of quarter-end for Part D. Between the effective date and January 2026, the Secretary could delay reporting.
• Member cost sharing: Part B member coinsurance would be 20% of the inflation-adjusted price as of April 2023. BBB did not include this three-month delay.
• Impact on best price and AMP: Rebates would not impact best price or average manufacturer price (AMP). There would be a reconciliation process in the case of revised AMP reporting for Part D drugs.
• Applicability and exclusions: Rebates apply to single-source drugs and biologics covered under Part D. Exceptions would be made in cases where the drug costs less than $100 annually, the drug is a vaccine, or there are shortages or severe supply chain disruptions.
• Funding: Collected rebates would be paid into the Medicare Part B and Part D trust funds.
• Figure 3 summarizes the key similarities and differences between PDPR and the Senate Finance Committee version of BBB.

Figure 3: Inflation-based rebates

Note: Bold wording denotes a change in the provisions of PDPR relative to BBB.

Other changes

The draft language includes several other miscellaneous provisions:

• The implementation of the point-of-sale rebate rule⁵ would be delayed indefinitely.
• There would be no cost sharing on Part D-covered vaccines as of January 2023. There would be a temporary subsidy to cover the cost for 2023. BBB proposed an effective date of January 2024.
• Physician reimbursement for biosimilars would be increased to 108% of average sales price (ASP), rather than 106%, for the period from 2022 to 2027. BBB did not include this provision.
• Low-income subsidies in Part D would be expanded to members with incomes below 150% of the federal poverty level (FPL), increased from the current threshold of 135% FPL. BBB did not include this provision.
• The portion of legislative text submitted to the parliamentarian does not include hearing benefits in Medicare, though the full scope of any revised legislation is not yet known as Congressional Democrats are still negotiating the full content of the legislation.

Next steps

This new proposal could create meaningful changes to drug prices and the Medicare Part D program. The PDPR language could see momentum in Congress as discussions for a reconciliation bill take shape. Senator Manchin (D-WV) appears to support the drug pricing provisions, a key hurdle as his opposition stalled BBB’s progress in the Senate.⁶ The language in the proposal is likely to change and its success may be tied to a larger bill, which could face greater opposition.

¹ See the full text of the Prescription Drug Pricing Reduction Act (PDPRA) proposed in the Senate in 2019 here: https://www.congress.gov/116/bills/s2543/BILLS-116s2543rs.pdf.

² See the full text of the Build Back Better Act passed by the House here: https://rules.house.gov/sites/democrats.rules.house.gov/files/BILLS-117HR5376RH-RCP117-18.pdf.

³ See the full text of the Senate Finance Committee version of the Build Back Better Act here: https://www.finance.senate.gov/imo/media/doc/12.11.21%20Finance%20Text.pdf.

⁴ See the full text of Prescription Drug Pricing Reform here: https://www.finance.senate.gov/imo/media/doc/070622%20Prescription%20Drug%20Pricing%20Reform%20Leg%20Text.pdf.

⁵ See the point-of-sale rebate rule here: https://www.federalregister.gov/documents/2020/11/30/2020-25841/fraud-and-abuse-removal-of-safe-harbor-protection-for-rebates-involving-prescription-pharmaceuticals.

⁶ See article here for more insight on Joe Manchin’s position: https://www.washingtonpost.com/us-policy/2022/06/29/schumer-manchin-drug-pricing/.