Congress and Administration Consider Significant Drug Pricing Policy Changes

Manatt on Health

In both chambers of Congress, passing legislation to bring down drug prices is a policy priority—and the savings from such possible legislation is slated to offset other healthcare legislative proposals (such as addressing impending Medicaid Disproportionate Share Hospital (DSH) allotment reductions). Nonetheless, gaining traction on changes designed to bring down drug pricing is proving challenging, for Congress and the administration.

Following the August recess, Speaker of the House Nancy Pelosi (D-CA) plans to unveil her long-anticipated drug pricing proposal, which is expected to require the Department of Health and Human Services (HHS) to negotiate drug prices for certain high-cost drugs in Medicare (along with other measures, such as establishing a Part D maximum out of pocket for Medicare beneficiaries). Simultaneously, Senate Finance Committee Chair Chuck Grassley (R-IA) is working to move his own drug pricing and Medicare drug benefit reform plan forward in the Senate—but without strong support from the Republican majority.

At the same time, President Trump, seeking to advance his own leadership on the issue, is weighing his response to these legislative initiatives while continuing to pursue ideas first advanced in his drug pricing blueprint. While some components of the administration’s drug pricing plan have recently fallen flat,1 President Trump announced that he will soon issue an Executive Order that is expected to direct HHS to advance and potentially expand upon the administration’s International Price Index (IPI) proposal2 and put forth a “most favored nation” proposal. Exactly what this means remains unclear, but one thing is certain: the President sees addressing drug pricing as a major component of his healthcare plan heading into the 2020 presidential race. In the coming weeks and months, we are likely to see the administration advance increasingly significant drug pricing proposals via regulatory action and cooperation with Congress on legislation.

Although the President has supported the Senate Finance Committee proposal behind the scenes, continued resistance to the bill among some Republican senators—and the potential that it could be “watered down” in coming weeks—could temper the White House’s interest, shifting its attention to other priorities (such as the House bill and administration actions).

Senate Finance Committee Bill

On Thursday, July 25, the Senate Finance Committee voted 19–9 (with all nine votes against the bill coming from Senate Republicans) to advance the Prescription Drug Pricing Relief Act of 2019 (PDRPA).3 The PDRPA would make significant changes to the Medicare Part D prescription drug benefit as well as introduce new and increased rebates in Medicare Parts B and D and Medicaid—but the bill’s prospects are far from certain. Several Republicans who voted for the bill said that they would not support its final passage without changes, and Ranking Member Ron Wyden (D-OR) said that he and other Democrats would not support bringing the legislation to the floor unless other healthcare provisions—including Medicare drug price negotiation and pre-existing condition protections—are also considered.

The most controversial part of the bill—its requirement that drugmakers pay rebates based on their Part D sales if list prices rise more than inflation—survived in a 14–14 vote (a majority was needed to remove the provision). The Committee also rejected, in a 16–12 vote, a Democratic amendment that would have given HHS the authority to negotiate drug prices in Medicare Part D.

In addition to the rebate provisions, the PDRPA’s most notable provisions would, if enacted:

  • Create a $3,100 out-of-pocket cap on beneficiary spending in Part D while changing the respective payment obligations of the government, plans and manufacturers.
  • Limit Part B drug reimbursement for certain new and high-cost drugs.
  • Increase the maximum rebate amount under the Medicaid Drug Rebate Program from 100% to 125% of the Average Manufacturer’s Price.

Notably, the bill’s savings could be used to fund other major healthcare legislative priorities—including impending Medicaid DSH allotment reductions that will otherwise take effect October 1. The Congressional Budget Office (CBO) did not provide exact projections, noting that the estimates are not complete, but it estimates total federal savings to be over $20 billion in the five-year window and over $100 billion in the ten-year window. Below are CBO’s preliminary estimates of the PDRPA by category:

  • Part B provisions would save $3.9 billion over five years; $12.9 billion over ten years.
  • Part D provisions would save $20.8 billion over five years; $92.1 billion over ten years.
  • Medicaid provisions would save a net $3.1 billion over five years; $16.5 billion over ten years.

CBO also notes that Medicare beneficiaries’ costs would decrease by about $25 billion over ten years due to the inflation rebate policies and the Part D redesign provisions.

1 Just one day prior to its scheduled effective date, a federal court struck down the White House’s rule that would have required manufacturers to include in television advertisements the list price of the advertised drug. HHS recently dropped its plans to advance its “rebate” rule due at least in part to concerns that it could raise beneficiary premiums.

2 The IPI proposal was first promulgated via an Advance Notice of Proposed Rulemaking (ANPRM). A proposed rule is currently under review by the Office of Management and Budget (OMB)—the last stop in the administration’s review process before a rule is released.

3 The Senate Finance Committee does not make legislative text public during the markup; rather, it conducts what is known as a “conceptual markup” of the proposal—known as the “Chairman’s mark”—without legislative text. The Chairman’s mark is available here, and the modifications to the Chairman’s mark are available here. All Committee documents and a recording of the hearing are available here.