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November 3, 2021

Democrats release compromise on drug pricing deal aimed for inclusion in Build Back Better Act

On November 2, Congressional leaders announced Democrats reached a bicameral agreement on drug pricing provisions aimed for inclusion in the Build Back Better Act, the $1.75 trillion tax and spending plan that forms the biggest part of President Joe Biden's legislative agenda. In a press release, Energy and Commerce Committee Chairman Frank Pallone (D-NJ) heralded the agreement stating, "We have reached a bicameral agreement to lower prescription drug costs for Americans. This deal will finally allow Medicare to negotiate lower prescription drug prices, penalize pharmaceutical companies that unfairly raise prices, and cap annual out-of-pocket prescription drug costs for seniors at $2,000."

With the drug pricing compromise in place, House Speaker Nancy Pelosi (D-CA) said the spending bill is "just about finished," and intends to get the bill on the floor for a vote later this week, along with the smaller $550 billion bipartisan infrastructure bill that has been passed out of the Senate. Arizona Democratic Senator Kyrsten Sinema (D-AZ), a key vote in the 50-50 Senate, said she agrees on the proposed plan. On Monday (November 1), however, Senator Joe Manchin (D-WV) refused to endorse the bill's framework at this time and demanded more time to evaluate its projected impact, a sentiment that was later echoed by several House moderates who asked to see the full Congressional Budget Office (CBO) score before voting on the bill. Budget Committee Chairman John Yarmuth (D-KY) said a CBO score would likely take two weeks.

According to a draft framework released earlier in the day, the proposal will include three main provisions:

  1. Providing the authority for Medicare to negotiate drug prices outside their initial exclusivity period. The framework would allow Medicare to negotiate 10 of the highest spending single source drugs outside their initial exclusivity periods, as well as insulin products, reaching 30 drugs in 2028 and beyond. The negotiated prices would be limited to 76% of a drug's 2021 non-federal average manufacturer price (NFAMP) for a small molecule drug fewer than 12 years but more than five years passed initial exclusivity; 55% of 2021 NFAMP for a drug 12 — 16 years passed initial exclusivity; and 30% for a drug more than 16 years passed initial exclusivity.
  2. Redesigning the Part D benefit to protect seniors from high out-of-pocket spending. The framework creates an annual out-of-pocket patient spending cap of $2,000 and caps insulin co-pays at $35 per month. The proposal also eliminates the coverage gap, or "donut hole" phase of the benefit and shifts more costs onto manufacturers and plans. Plans would be responsible for 60% of the costs in the catastrophic phase of the benefit and manufacturers would be responsible for 20% of the costs for brands, biologics and biosimilars and 0% for generics.
  3. Instituting rebates for drug prices that grow faster than inflation. The base year for the inflation rebate would be 2021, calculated based on total drug units sold, and all drugs would be subject to rebate.

The proposal also includes special rules for small biotech companies, including exempting them from negotiation for the first three years (until 2028); exempting drugs that contribute less than $200 million in Medicare spending; phasing-in reductions from negotiations; and phasing in liability in Part D redesign for six years.


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For additional information concerning this Alert, please contact:
Washington Council Ernst & Young
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