President Joe Biden yesterday afternoon signed into law historic, decades-in-the-making new drug pricing reforms as part of a wider reconciliation bill that will likely take a chunk out of biopharma companies’ profits for some blockbusters just prior to generic or biosimilar competition.
The partisan bill (
all Democrats
in the House and Senate voted for it, and all Republicans voted against it) includes not only Medicare price negotiations — which won’t kick off until 2026, leaving ample time for a
legal challenge
— but mandatory inflation-related rebates, and a $2,000 annual cap on what seniors’ pay for their prescription drugs.
On the positive side: the White House said 1.4 million Medicare beneficiaries will benefit from the $2,000 cap on out-of-pocket costs, while another 3.3 million Medicare enrollees will benefit from a separate $35 monthly cap on their insulin, though a wider rollout of that cap to the commercial insulin market failed to pass.
“I got here as a 29-year-old kid. We were promising to make sure that Medicare would have the power to negotiate lower drug prices back then,” Biden said during the signing ceremony yesterday. “But guess what? We’re giving Medicare the power to negotiate those prices now, on some drugs. This means seniors are going to pay less for their prescription drugs while we’re changing circumstances for people on Medicare by putting a cap — a cap of a maximum of $2,000 a year on their prescription drug costs, no matter what the reason for those prescriptions are.”
Beginning in 2026, price concessions will kick off for 10 of the most expensive single-source drugs in Medicare’s Part D program, building up to 20 Part D drugs and 20 Part B drugs in 2029 and beyond, with prices generally capped by at least 40%.
But only drugs that have been marketed for 9 years, or biologics marketed for 13 years, can be included in the negotiations, meaning companies will have almost a decade to reap the rewards of their blockbusters (and it’s hard to imagine anything less than a blockbuster will be included in negotiations).
Beginning October 1, 2023, pharma companies that will be hit with the negotiations in 2026 will have to sign an agreement on the negotiations, and then in Feb. 2024, CMS will propose a maximum fair price for those first 10 drugs, according to
new slides
from the law firm Hyman, Phelps, & McNamara.
But CMS will have to consider multiple factors in determining these new prices and provide a rationale, including the cost of R&D, patents and exclusivity, whether a drug addresses an unmet need, and others. CMS also must renegotiate the prices if a drug moves from being marketed for less than 12 years to more than 12, or less than 16 years to more than 16.
And renegotiations may (or may not) occur if a new indication is approved, but without that assurance, many in the biopharma industry have raised concerns that there will be less incentive to invest in the type of research to add new indications. The days of megablockbusters racking up new indications and extending their monopolies, as seen with AbbVie’s Humira or Amgen’s Enbrel, may now be a thing of the past.
The bill includes a number of heavy sticks to mandate participation, including $1 million per day in fines for failing to provide the info requested by CMS, and $100 million per piece of false info provided.
But considerable attention by Congress has also been paid to smaller biopharma companies, with varying levels of negotiations for drugs and biologics with the impending competition. Biosimilar manufacturers can request a one-year delay in negotiations for any reference biologics, and if a biosimilar app has already been submitted, CMS can delay the selection of a biologic.
Meanwhile, the bill also establishes new quarterly rebates on single-source Part B and D drugs and biologics that see their prices rise faster than the rate of inflation. The first mandatory Part D rebate period begins in October and runs through the end of the fiscal year, but drugs on FDA’s shortage list may be waived from the rebates, or have them lowered. Failing to pay these new rebates means companies will have to pay 125% of what the rebates would’ve cost.
Democrats had sought to extend these rebates to the private market too, but the Senate parliamentarian ruled against their inclusion, which limits the size of the rebates. However, commercial prices do still factor into the calculations for the Medicare inflationary rebates, according to
Harvard’s Benjamin Rome
, so it’s not as if companies will be able to increase all of their prices across the board to make up for the losses from any price spikes impacted by the new Medicare inflation-related rebates.
Several Republican members of Congress during the House floor debate last week over this bill tried to signal that this linkage of rebates to inflation would mean that drug prices would rise faster than normal. But even with the self-imposed 9.9% cap on drug price increases that pharma companies have followed for years now, these new rebates should slow drug price increases even further.
This is the multi-billion dollar question that neither the Congressional Budget Office nor the biopharma industry did a very good job of explaining.
On the one hand, some pharma companies will take a hit from both the inflation-rebate provisions and the negotiations, but on the other hand, the companies will find ways to recoup those losses, either via higher launch prices, potentially low-volume generic/biosimilar entry deals, or other creative ways.
The true impact on biopharma R&D remains unknown, will likely remain unknown in the near future, and may be the type of statistic that’s difficult to track but both sides will use to claim victory on the law’s successes or failures.
For its part, the CBO has said that over the next 30 years, of the approximately 1,3000 drugs approved, about 15 drugs may be cut from biopharma companies’ collective pipelines, including 2 over the 2023-2032 period, about 5 over the subsequent decade, and about 8 over the third decade.
But the CBO also projects that the inflation-rebate and negotiation provisions mentioned above would increase the launch prices for drugs that are not yet on the market relative to what such prices would be otherwise, which may offset some of those losses that would cut into their R&D budgets.
Under the inflation-rebate provisions, CBO also says “manufacturers would have an incentive to launch new drugs at a higher price to offset slower growth in prices over time.”
But Big Pharma trying to either game or sue over this law shouldn’t come as a surprise, Washington University law professor Rachel Sachs writes at
Health Affairs
.
And for the generic drug industry, which opposed the Inflation Reduction Act as much as their Big Pharma peers, CBO said it did not analyze the effects of the negotiations on the introduction of new generic drugs. The generic industry has lamented the fact that it may invest in generic drugs for reference products that will be hit with the negotiation provisions, thereby lessening the industry’s ability to go after lucrative targets.
