The Inflation Reduction Act is legislative text released by Senate Democrats that would build on the House-passed Build Back Better Act (BBBA). Part of President Biden’s Build Back Better domestic policy agenda, the final bill is expected to include policies related to tax, clean energy and healthcare and drug pricing reforms (further details below). Given the slim majorities Democrats hold in both the House and the Senate, the bill is being considered through the budget reconciliation process. This process provides a path for enacting legislation with a simple majority vote (51) in the Senate rather than the traditional 3/5ths threshold for passage (60). This means Democrats cannot lose a single Senator in the 50-50 split Senate. Vice President Kamala Harris would then serve as the tie-breaking 51st vote.
The drug pricing reforms in the IRA are substantially very similar to the House-passed Build Back Better Act, including a new Part B negotiation program, new manufacturer rebates imposed for increasing list prices above the rate of inflation, a Part D redesign and new beneficiary out-of-pocket cap, and further delay of the Trump Administration’s “Rebate Rule.” Each of these changes are discussed in more detail below, but are subject to change as Senate negotiations continue.
The IRA allows the HHS Secretary to negotiate prices for high cost drugs nearing or following the end of their market exclusivity (9 years for small molecule drugs; 13 years for biologics) in Medicare Part D beginning in 2026 and Medicare Part B beginning in 2028. Products must not have generic or biosimilar competition.
Negotiated prices, known as Maximum Fair Prices (MFP) would be available to both Medicare fee-for-service and Medicare Advantage, but not commercial plans. MFP ceiling prices are specified in the legislation based on a drug’s years since FDA approval, creating price reductions of 25-60% off average manufacturer prices.
There is also new language in the Senate bill that would allow the Secretary to delay negotiation of a biologic for up to two additional years, if a biosimilar is expected to enter the market before the negotiated price would take effect. The bill also includes protections for small manufacturers, excluding them from negotiation in 2026, 2027 and 2028.
MFP agreements continue in perpetuity as the drug stays on the top 50 highest-spend drug lists for both Parts B and D. Renegotiations may be triggered for new indications, changes in exclusivity status, R&D and product costs, and market data. Manufacturers failing to negotiate with HHS would be subject to excise taxes of 65% on the drug’s gross sales, rising to 95% for each quarter of noncompliance. Drug price negotiation has been championed by Democrats for years, though this is the closest the policy has come to enactment. Republicans generally oppose allowing Medicare to negotiate directly for drug prices.
The IRA creates a new mandatory rebate to be paid by drug manufacturers for increasing Parts B and D list prices above the rate of inflation beginning on October 1, 2022 for Part D drugs and January 1, 2023 for Part B drugs. Rebate amounts vary by drug and are to be assessed based on the percentage of the drug price exceeding the inflation benchmark. Manufacturers refusing to pay the mandated rebates would be subject to civil monetary penalties equal to or at least 125 percent of the rebate amount for such calendar quarter. This policy has been proposed in previous bills and maintains bipartisan support.
This provision creates a new Part D cap for prescription drugs costs by setting the annual beneficiary out-of-pocket limit at $2,000 beginning in 2025. It also lowers beneficiary coinsurance in the initial coverage phase to 25.5%. The section reduces from 80% to 20% the government reinsurance in the catastrophic phase of Part D coverage for applicable brand drugs and for non-applicable drugs, government reinsurance is 40% in the catastrophic phase. The provision also converts the current coverage gap discount program into a benefit-wide responsibility, requiring manufacturers of branded drugs to contribute to payments in both the initial (10%) and catastrophic phases (20%) of the benefit, and allowing for a discount phase-in for certain drug manufacturers. The IRA also allows Medicare beneficiaries to spread MA and Part D out-of-pocket costs throughout the plan year (known as “patient smoothing”). Most of these policies enjoy bipartisan support.
The IRA further delays implementation of the Trump Administration’s “Rebate Rule” (Fraud and Abuse; Removal of Safe Harbor Protection for Rebates Involving Prescription Pharmaceuticals and Creation of New Safe Harbor Protection for Certain Point-of-Sale Reductions in Price on Prescription Pharmaceuticals and Certain Pharmacy Benefit Manager Services Fees). This rule was intended to channel existing rebates between manufacturers and PBMs into patient savings at the pharmacy counter, eliminating the safe harbor for rebates and establishing a new safe harbor for discounts extended to patients at point-of-sale. The Rebate Rule cost the federal government nearly $180 billion due to its effect of increasing premiums. By delaying implementation of the rule, the federal government saves billions of dollars. This rule divides along party lines, with Democrats preferring to scrap it in favor of alternative drug pricing reforms and with Republicans preferring to keep the rule.
In an effort to incent the development and utilization of biosimilars, the IRA would provide a temporary add-on payment increase for Part B biosimilar drugs to the BBBA. The provision would increase reimbursement for biosimilars to Average Sales Price (ASP) +8% beginning on October 1, 2022 for 5 years. This a 2% increase to the ASP add-on. It is not inclusive of Medicare sequestration effects. This policy has attracted bipartisan support in the past.
This is currently a very fluid process. Senate committees are working to ensure support from all 50 Senate Democrats, finalize text, obtain cost estimates from the Congressional Budget Office, confirm reconciliation compliance with the Senate’s parliamentarian. While Senate Majority Leader Chuck Schumer (D-NY) aims for the Senate to vote on the IRA before the Senate adjourns for August recess, the exact timeline remains unclear. Upon Senate passage, the bill would move to the House for passage and then on to the President for signature.
The US Oncology Network issued a statement expressing strong concerns with the BBBA’s drug pricing provisions, particularly the new Part B negotiation program. Click Here to read the statement. The Network regularly engages with Members of Congress to express these concerns directly and advocate for more patient- and provider-friendly drug cost reforms.