Landmark Drug Pricing Bill Set to Become Law; HP&M Releases Summary Slide Deck

The Inflation Reduction Act of 2022 (“IRA”) has now passed both the Senate (on August 7) and the House (on August 12), and is headed to President Biden for signature.  We have prepared a slide deck that summarizes Subtitle B of the IRA, entitled “Prescription Drug Pricing Reform.”  The slide deck is available here.  The major provisions of Subtitle B, which are described in more detail in the slides, are briefly outlined below:

• Price negotiation under Medicare Parts B and D: For each year starting in 2026,  the Department of Health and Human Services (“HHS”) will negotiate the selling prices of a certain number of selected high-expenditure single-source drugs and biologics.  The number will begin in 2026 with 10 drug covered under Medicare Part D and will increase annually to 20 Part B and 20 Part D drugs by 2029 and thereafter, with the selected drugs accumulating from year to year.  Drugs that have been approved within the previous 7 years and biologics that have been approved within the previous 11 years cannot be selected for negotiations.  The negotiations will result in a Maximum Fair Price (“MFP”) that the manufacturer must make available to providers furnishing the drug under Medicare Part B or pharmacies dispensing the drug under Part D.  The MFP cannot exceed a statutory ceiling based on a percentage of the drug’s non-federal average manufacturer price (“NFAMP”), with the percentage decreasing the longer the drug has been on the market.
• Inflation rebates under Medicare Parts B and D: Starting in 1Q 2023, mandatory quarterly rebates will be imposed on manufacturers of single-source drugs and biologics covered under Part B that have price increases exceeding the rate of inflation. Similarly, for the fiscal year starting October 1, 2022, mandatory annual rebates will be imposed for certain Part D drugs, biologics, and biosimilars with price increases exceeding the rate of inflation.
• Medicare Part D redesign: The IRA changes Medicare Part D starting in 2025 by lowering the patient out-of-pocket (“OOP”) limit to $2,000, adjusted annually in subsequent years. The coverage gap will be eliminated, and the relative contributions of Medicare, Part D plans, the enrollee, and the manufacturer toward the costs of a drug will change for the periods before and after the OOP threshold is reached.  The current Coverage Gap Discount Program will be replaced by a new manufacturer discount program, through which drug manufacturers subsidize 10% of the enrollees’ brand drug costs below the OOP limit and 20% of the costs above that limit.
• Insulin: Any insulin approved under an NDA or BLA and covered under Medicare Part D or a Medicare Advantage plan will have no deductibles starting in 2023 and will have a monthly limit of $35 on copayments.  Starting July 1, 2023, the IRA will also limit to $35 the total monthly contribution by a Medicare Part B beneficiary for insulin purchased through a durable medical equipment (“DME”) supplier.
• Vaccines: Starting in 2023, Medicare Part D will cover all adult vaccines approved by the Advisory Committee on Immunization Practices (“ACIP”) without any deductible or coinsurance.  The same will be required under state Medicaid and CHIP programs by October 1, 2023.
• Biosimilar payment: The IRA will, for a five-year period, increase the Medicare Part B add-on payment for biosimilars for which the average sales price (“ASP”) does not exceed the ASP of the reference biologic.
• OIG PBM rebate regulation: Until January 1, 2032, the HHS OIG may not implement its 2020 regulation that amended the antikickback law safe harbors to exclude manufacturer rebates to Part D plans (and their PBMs) unless they are passed through to pharmacies.

Much has been written in the press and by analysts about the impact that these provisions will have on drug innovation, drug manufacturer revenues, and patient access.  Rather than adding to these predictions, we’d like to focus on what, to us, is ground-breaking about the IRA:  for the first time, mandatory price controls are imposed on drugs in the U.S.  With one recent and minor exception (see our blogpost here), all of the government discount and rebate programs heretofore have been founded on agreements between the government and manufacturers.  These agreements are voluntary, and in exchange for signing them a manufacturer obtains the benefit of coverage or procurement under federal health care programs.  The Congressional sponsors of these programs deliberately made them voluntary precisely in order to avoid imposing price controls, consistent with the traditional view in the U.S. that price controls distort markets and reduce competition.  They also hoped to avoid Takings Clause or other constitutional challenges.  Those constraints have now been abandoned.  Under the IRA, the obligations to negotiate and adhere to an MFP and pay inflation rebates to Medicare are mandates, enforced by excise taxes and/or monetary penalties – in the case of the MFP requirements, draconian monetary penalties.  Manufacturers receive no benefits in exchange for the inflation rebates.  In return for providing the MFP, manufacturers of selected drugs do receive coverage, but high utilization drugs are certain to have coverage anyway.  Adding to their compulsory nature, many elements used in the determination of the mandated discounts, including the number of units subject to inflation rebates, whether a drug is a rebatable drug, and the amount of an inflation rebate, will be determined unilaterally by HHS with no dispute process and no possibility of administrative or judicial review, which are precluded in the law.

While opinions may differ on the wisdom of mandatory drug price controls as a matter of health care policy, there can be no doubt that, with the IRA, they are here now.  The dam having been breached, we are likely to see more of them in the future.