A Short-Term Gain for a Long-Term Loss? The Build Back Better Act’s Medicare Drug Price Negotiation Program Ignores Hatch-Waxman/BPCIA Realities . . . and that May Mean Big Bad Business for Generic Drug/Biosimilar Manufacturers

There’s a lot of things packed (and that need to be unpacked to understand) into the latest version (as amended) of H.R. 5376, the 2100-plus page bill better known as the “Build Back Better Act.”  The bill has gone through the House Committee on Rules and will likely be debated soon on the floor of the House of Representatives.

One of the new programs included in the H.R. 5376 that has garnered the greatest amount of attention (at least in the food and drug law world) is TITLE XIII, Subtitle J (Drug Pricing), Part 1 (Lowering Prices Through Fair Drug Price Negotiation), Section 139001 (Providing for Lower Prices for Certain High-Priced Single Source Drugs).  That section of the bill – along with the other accompanying sections and parts of the bill – would amend Title XI of the Social Security Act to create a new part – Part E – requiring the HHS Secretary to establish a “Fair Price Negotiation Program” intended to lower prices for certain high-priced single-source drugs and biological products.

Specifically, proposed Section 1191 (in Title XI of the Social Security Act) provides:

SEC. 1191. ESTABLISHMENT OF PROGRAM.

(a) In General.—The Secretary shall establish a Fair Price Negotiation Program (in this part referred to as the “program”).  Under the program, with respect to each price applicability period, the Secretary shall—

(1) publish a list of selected drugs in accordance with section 1192;

(2) enter into agreements with manufacturers of selected drugs with respect to such period, in accordance with section 1193;

(3) negotiate and, if applicable, renegotiate maximum fair prices for such selected drugs, in accordance with section 1194; and

(4) carry out the administrative duties described in section 1196.

The provisions in Section 139001 of H.R. 5376 that would implement the “Program” get pretty complicated from there.  Fortunately, MedPac put together a short summary of the “Program” that runs through the process for the identification of  “negotiation-eligible drugs” from among “qualifying single source drugs,” the selection of drugs for negotiation (i.e., “selected drugs”), and more.  (Another summary of the drug price negotiation provisions is available here.)  Here are the important points from the MedPac summary:

Sec. 139001 lays out a process by which the Secretary would:

• Identify “negotiation-eligible drugs” from among qualifying single-source drugs that are among the top 50 with the highest Part D spending, the top 50 with the highest Part B spending, and insulins. Qualifying single-source drugs are those that were approved at least 7 years ago (for drugs) or licensed 11 years ago (for biologics) for which no generic or biosimilar product has been approved/licensed and marketed. There are exceptions for certain orphan drugs and for certain drugs manufactured by small biotech companies.

• Select a limited number for negotiation (“selected drugs”) and enter into agreements with their manufacturers to negotiate a “maximum fair price.” In 2025, the Secretary would select no more than 10, 15 in 2026, 15 in 2027, and 20 in 2028 and subsequent years. The Secretary is to take into account factors such as whether the manufacturer has recouped its R&D and the comparative effectiveness of alternative therapies.

• The negotiation process would take place between March and November in the year two years prior to which the maximum fair price would be applicable. The Secretary may not negotiate a price higher than a ceiling that is a 25% to 60% discount (depending on the length of time the drug has been approved without generic or biosimilar competition) off the average price paid to the manufacturer by wholesalers and others for drugs distributed to nonfederal purchasers (non-federal AMP. . .). There would also be a renegotiation process beginning in 2027 for selected drugs for which factors that the Secretary considered had changed.

• The maximum fair price shall not apply before at least 9 years have passed since first approval (for drugs) or at least 13 years since first license (for biologics).

While this blogger does not have any particular comments on whether or not the idea of government drug price negotiation is good or bad, the way it has been structured in H.R. 5376 appears to have been without regard to the generic drug an biosimilar biological product industries.  That is, it was apparently conceived and drafted without regard to the Hatch-Waxman Amendments and the Biologics Price Competition and Innovation Act (“BPCIA”).  How so?  Well, as one commentator noted: “Companies considering launching a generic or biosimilar product may not be able to undercut the government-set price of the reference product enough to obtain market share sufficient to offset their costs.”

Let’s put a little more detail on that . . . .

Under H.R. 5376, the HHS Secretary may negotiate a price that is at least a 60% discount off the average price paid to brand-name drug and biological product manufacturers by wholesalers and others.  And the maximum fair price shall not apply before at least 9 years after a brand-name drug is approved, and before at least 13 years after a biological reference product is licensed.

Given how Hatch-Waxman and the BPCIA operate, with periods of marketing exclusivity, 30-month stays related to Paragraph IV certifications (Hatch-Waxman only), patent infringement litigation, and patent settlement agreements, it’s not uncommon for a company that has invested millions or tens of millions of dollars into developing a drug (particularly a “complex generic”), or perhaps $100 million or more to develop a biosimilar biological product, to finally obtain approval and market the drug product well after 9 years after the brand-name NDA drug is approved, and well after 13 years after a BLA reference product is licensed.  But at the point, the generic drug/biosimilar market is destroyed under the price negotiation provisions of H.R. 5376 because the price of the brand-name drug/biologic may have been cut by at least 60%.  And at that minimum price point alone, “a generic or biosimilar [manufacturer] may not be able to undercut the government-set price of the reference product enough to obtain market share sufficient to offset their [development] costs.”

That’s a difficult pill to swallow.

It means less – or no – generic/biosimilar competition.  After all, given the uncertainty around what drugs and biologics the government could decide are subject to price negotiation, when they might be approved or licensed relative to the price negotiation triggers, and whether any negotiated price in effect at the time a generic drug/biosimilar is approved and marketed will allow a company to – at the very least – recoup costs, why would a company even entertain getting into (or even continuing on with) the generic drug and biosimilars business??

Whatever the short-term benefits may be by establishing the Medicare drug price negotiation system proposed under H.R. 5376, Congress ignores the Hatch-Waxman Amendments and the BPCIA at its own peril (and perhaps at the peril of the public health), as the long-term consequences of H.R. 5376 may be the dismantling and drying up of a robust generic drug and biosimilars industry.  (Heck, nobody ever thought the Colorado River would dry up either.)  So, in 10, 15, or 20 years from now we may be in need of a new type of Build Back Better Act.