Discounts on Drugs Covered By Government Programs Would Multiply Under Energy and Commerce Healthcare Reform Bill

By Alan M. Kirschenbaum –

As we reported on August 2, the House Energy and Commerce Committee last Friday reported out its healthcare reform bill, the America’s Affordable Health Choices Act (H.R. 3200).  In order to help finance healthcare reform, the bill contains numerous provisions that would increase the current discounts that prescription drug manufacturers provide under federal programs and add several new pricing/discount provisions.  One such provision, which was added by amendment at the Committee mark-up, was the repeal of the “non-interference” provision under Medicare Part D.  This prohibition, which was a cornerstone of the Part D prescription drug benefit legislation initially enacted in 2003, would be replaced by a provision explicitly permitting the Secretary of Health and Services to negotiate with pharmaceutical manufacturers to obtain price concessions on Part D drugs.

Numerous other drug discount and pricing provisions contained in the Committee draft were reported out intact.  These include the following:

• Rebates for Part D beneficiaries in the coverage gap (§1182):   The bill would eliminate the Part D coverage gap (the so-called “donut hole”) over a nine-year period beginning in 2011.  However, while the coverage gap exists, drug manufacturers would be required, as a condition of drug coverage under Part D, to enter into an agreement modeled after the Medicaid Rebate Agreement, in which the manufacturer agrees to pay rebates to prescription drug plan (PDP) sponsors on units dispensed to Part D beneficiaries in the coverage gap.  The rebate would be equal to 50% of the negotiated price of the drug.  This provision implements an agreement negotiated between the industry and the Obama Administration.

• Rebates for Dual Eligibles (§1181(b)):  In addition, again as a condition of having their drugs covered under Part D, manufacturers would be required to enter into a separate agreement providing for payment to Medicare of rebates on Part D drugs dispensed to full-benefit dual eligibles.  The rebate would be the difference between the Medicaid Rebate and the average amount of discounts, rebates, and other price concessions offered by the manufacturer on each drug dispensed to full-benefit dual eligibles under Part D.

• Changes to the Medicaid Rebate Program (§§ 1741-1743):  Beginning in 2010, the minimum per-unit Medicaid Rebate for innovator drugs would be increased from 15.1% to 22.1%.  Rebates would now be payable on units dispensed to enrollees in Medicaid managed care organizations.  There would be several changes to the definition of average manufacturer price (AMP):  the current regulatory exclusion of bona fide services fees and returns would be codified in the statute, and AMP would additionally exclude (1) price concessions (if not passed through to retail pharmacies) and direct sales to PBMs, managed care organizations, HMOs, insurers, long term care providers, and mail order pharmacies not open to the public; (2) price concessions and direct sales to hospitals, clinics, and physicians, except for inhalation, infusion, or injectable drugs, or except as determined by CMS; and (3) rebates required under the Part D agreements described above.  The AMP calculation for extended release formulations of oral dosage drugs would have to take into account price increases of the original formulation.  With regard to Federal Upper Limits, CMS would be required to continue to use the method established by regulation in 2006 (previously codified at 42 C.F.R. 447.332) until January 2011, when the methodology would be revised to 130% of weighted AMPs of the multiple source drugs.

• Expansion of 340B Program (§§ 2501-2502):  The list of covered entities eligible for discounts under section 340B of the Public Health Service Act would be expanded to include certain children’s hospitals, critical access hospitals, Medicare-dependant small rural hospitals, sole community hospitals, and rural referral centers, and inpatient drugs as well as outpatient drugs purchased by these hospitals would be eligible for the 340B discount.  In addition, maternal and child health clinics, mental health services providers, and substance abuse treatment centers receiving federal funds would be added to the list of covered entities.

It is too soon to predict whether these provisions will survive in the final health care reform bill – if there is one.  H.R. 3200 will reach the House floor for a vote following the August recess.  In the Senate, a healthcare reform bill has cleared the HELP Committee, but the Finance Committee has yet to complete legislation.  If and when the Senate passes a bill, differences from the House version will have to be reconciled.  We’ll be posting updates on this legislation as it progresses.