Budget Act Increases Brand Drug Companies’ Discounts Under Government Programs

Buried in the 250 pages of the Bipartisan Budget Act of 2018 (BBA 2018), which was signed by President Trump on Friday, February 9, are several provisions directly affecting the discounts brand drug manufacturers must pay under federal drug benefit programs:

Increase in Part D Coverage Gap Discount (BBA 2018 section 53116): The first provision will substantially increase coverage gap discounts payable by brand manufacturers under the Medicare Part D prescription drug benefit beginning in 2019. Under Part D, enrollees have heightened co-insurance responsibilities in the so-called coverage gap – i.e., the annual period after the enrollee and the plan have spent a specified amount on covered drugs ($3,750 in 2018), but before the enrollee’s out-of-pocket costs reach the catastrophic coverage threshold ($5,000 in 2018). Under the Coverage Gap Discount Program, the manufacturer of an innovator drug (i.e., a drug approved under an NDA or BLA) dispensed to an enrollee in the coverage gap is currently required to subsidize 50% of the “negotiated price” of the drug – that is, the amount the Part D plan has agreed to pay the pharmacy for the drug. The enrollee and the plan share the remainder of the cost. Before BBA 2018, the enrollee’s cost-sharing amount in the coverage gap, 35% in 2018, was to decrease to 30% in 2019 and 25% in 2020 and thereafter. BBA 2018 has accelerated that reduction so that enrollees will pay 25% in 2019 and thereafter. At the same time, BBA 2018 increased the manufacturer’s subsidy under the Coverage Gap Discount Program from 50% to 70% of the negotiated price, beginning in 2019. (Drugs approved under ANDAs are unaffected by this amendment, since they are not subject to coverage gap discounts.)

Biosimilars no longer exempt from coverage gap discounts (BBA 2018 section 53113): Before BBA 2018, biosimilars were exempt from coverage gap discounts. That exemption will now terminate beginning in 2019.

Correction of alternative rebate for line extensions under Medicaid Drug Rebate Program (BBA section 53104): Under the Medicaid Drug Rebate Program, a line extension (for example, an extended release formulation) of an oral solid dosage form innovator drug is subject to an alternative unit rebate amount (URA) calculation, if that calculation produces a URA higher than that produced under the ordinary statutory methodology. The alternative calculation was intended to tie the URA of the line extension drug to the degree of the original drug’s price increases, in order to prevent manufacturers from avoiding price increase penalties by making small changes in a line extension. However, the alternative calculation formula, enacted in 2010 as part of the Affordable Care Act, did not work as intended, and has now been corrected by BBA 2018.

Before BBA 2018, the alternative URA calculation took the highest additional rebate (i.e., the penalty rebate for price increases greater than inflation) of any strength of the original drug as a percentage of the original drug’s average manufacturer price (AMP), and multiplied that amount by the AMP of the line extension drug. Under the BBA 2018 amendment, an amount is calculated as described above, but that amount is added to the base rebate (usually 23.1% of the AMP) of the line extension drug. Therefore, the alternative URA calculation will be greater under the BBA 2018 revision than under the original provision. The new amendment is effective as of October 1, 2018. Note that CMS has yet to issue regulations defining a “line extension” – something the agency said two years ago that it intends to do.