The transitional mechanism for the alternative extrapolation
Implications of the European Commission’s proposal for the Solvency II Directive.
On November 3, 2021, Congress introduced a working draft of H.R.5376, the Build Back Better Act (BBB).1 This legislation would result in, among other things, major changes to the Medicare Parts B and D programs that could materially impact all stakeholders. The House passed this legislation on November 19, 2021, and the Senate is expected to vote in the coming weeks. Commentary in this paper is based on the Rules Committee Print 117-18 of November 3, 20221, while incorporating changes from the Rules Committee Amendment 117-19 of November 5, 2021.2 The key provisions affecting the Part D program and Medicare Part B drug reimbursement include:
This Milliman brief provides an overview of these proposed changes. Although the BBB includes changes that affect other parts of the healthcare system, this Milliman brief focuses on impacts to Medicare Part D and Medicare Part B drug costs, summarizing the provisions as stated in the text. It does not attempt to outline considerations and questions. Milliman intends to publish additional pieces in the coming months discussing the implications of this legislation on the Medicare Advantage and Part D programs.
The BBB establishes a drug price negotiation program that allows the Secretary of the U.S. Department of Health and Human Services (HHS) to select a subset of Medicare Part B and D drugs beginning in 2025 to be subject to price negotiations with HHS, focused on drugs with the highest total expenditures and on insulin products. Drugs would be selected from the top 50 highest-spend qualifying single source Part B drugs, the 50 highest-spend qualifying single source Part D drugs, and single-source insulins. Figure 1 summarizes some common questions and answers about drug price negotiation.
Figure 2 illustrates the key dates for the first year that negotiated prices would be available (2025).
Subsequent years are set to have the same windows of time dedicated to negotiation. The initial offer from the HHS Secretary is required to be delivered to the manufacturer by June 1, or 19 months prior to the negotiated price’s effective date. Manufacturers must respond to the offers from the Secretary within 30 days of receipt. As Figure 2 illustrates, plan sponsors would have about six months of lead time to incorporate negotiated prices into their bids, as the 2025 bids would be filed in June of 2024.
The number of newly selected drugs for negotiation would begin with 10 selected drugs in 2025, increasing by 15 each for 2026 and 2027, with 20 drugs selected in subsequent years. The number of negotiation-eligible drugs are cumulative. For example, this would allow the HHS Secretary to select 25 total drugs in 2026, though drugs may be removed from the list of negotiated drugs once competition enters the market. The Secretary may choose to negotiate any number of single-source insulins in addition to the number of drugs previously described. All selected drugs would be subject to a minimum discount aligned with the years since approval from the U.S. Food and Drug Administration (FDA). Figure 3 summarizes types outlined in the draft bill.
The minimum discounts shown in Figure 3 are relative to the non-federal average manufacturer price (AMP) in 2020, indexed to the applicable year when the negotiated drug prices will be available.
In addition to the classifications above, small-molecule drugs would be eligible nine years after launch, while biologics would be eligible after 13 years. Additionally, there are several types of drugs that will be exempt from negotiations or have nonstandard treatment for a short period of time. These exceptions include:
Manufacturers would pay 10 times the difference in actual and negotiated price, per unit dispensed, for failure to provide eligible entities the maximum fair price during the period of a maximum fair price agreement. A manufacturer of a selected drug that declines to sign an agreement when a selected drug is published will pay a variable tax that starts at two times the daily sales in the first 90 days of the year and grows to 19 times the daily sales in the last quarter of the year.
Benefit costs in the Part D program are paid by several stakeholders, described below. The amount covered by each stakeholder changes as the beneficiary moves through the benefit thresholds. The current stakeholders are:
While there have been changes to the program over the years, Section 139201 of the BBB proposes the most significant changes to the structure of the benefit design to date, which will alter the financial responsibilities of all stakeholders.
Under the current law, the Part D benefit design is as follows:
An illustration of the current benefit design can be seen in Figure 4. Note that this reflects the defined standard design, and plans can modify member cost sharing in all phases to enhance the benefit.
Under the proposed benefit redesign, the Part D benefit would change as follows, effective January 1, 2024:
An illustration of the new benefit design can be seen in Figure 5.
The BBB includes a phase-in of the new manufacturer discount program for LI beneficiaries taking drugs from “specified” manufacturers and for all beneficiaries taking drugs from “specified small” drug manufacturers. The phase-in percentages would apply as follows:
Figure 6 summarizes the different manufacturer types and beneficiaries where this phase-in would apply. Manufacturers are defined as “specified” or “specified small” as follows:
In addition to the changes described above, the BBB would change the calculation of the national average member premium (NAMP), affecting the direct subsidy. Currently, the NAMP is calculated at 25.5% of the total costs of the Part D program (national average bid amount + national average federal reinsurance amount). Under the BBB, the NAMP would be calculated as 23.5% of the total costs, thereby increasing the direct subsidy and lowering member premiums, all else equal.
The BBB introduces new rebate payments from manufacturers to the federal government if drug prices increase by more than inflation. Drug prices from the benchmark year (2021) are trended by CPI-U and compared to actual prices to calculate the inflation rebate. The rebate calculation varies between drugs covered by Medicare Parts B and D but follows a similar formula:
Inflation Rebate=Total Units*Max(Actual Price-Inflation Adjusted Benchmark,0)
Figure 7 illustrates the inflation rebate dynamics. A few additional highlights:
Figure 8 summarizes key components of the inflation rebate calculations for Medicare Part B versus Part D drugs. We summarize additional detail by component in each section below.
Inflation rebates would apply to all single-source and biologic Medicare Part B drugs (including biosimilars), excluding vaccines and drugs that cost less than $100 per beneficiary per year. The key components include:
In Part B, member coinsurance is defined as 20% of allowable costs. This coinsurance would apply to the inflation-adjusted payment amount (benchmark cost trended by CPI-U) instead of 106% of ASP if an inflation rebate applies. This effectively passes a portion of the inflation rebate through to the beneficiary.
Figure 9 illustrates the timeline for the Part B inflation rebate calculation for a drug that has launched prior to September 2021. The first quarter eligible for rebates would start July 2023. The inflation-adjusted benchmark amount (from Q3 2021) would be adjusted by the change in CPI-U from September 2021 to six months prior to the current quarter (or January 2023, in this example). The HHS Secretary would calculate the rebate, notify the manufacturer within six months (or by January 1, 2024, in this example), and then the manufacturer would have 30 days to make the payment (or by February 1, 2024, in this example).
For a drug that launches after September 2021, the following adjustments are made:
Part B inflation rebates would be determined separately each quarter, with the six-month lookback. Within six months of the initial applicability (e.g., by January 1, 2024, for the July 1, 2023, quarter), the HHS Secretary would notify drug manufacturers of any inflation rebate owed for the quarter six months prior.
For both Parts B and D drugs, the inflation rebate would be waived for particular drugs if there is a material supply shortage, as determined by the HHS Secretary. The inflation rebate would also be excluded from the definitions of best price and AMP.
Inflation rebates would also apply to all Medicare Part D or outpatient pharmacy drugs starting in 2023. The approach would be similar to the Medicare Part B drugs, with a few changes:
For Part D drugs, the HHS Secretary will notify the manufacturer of an inflation rebate owed no later than nine months after the end of the plan year. This timing is similar to the reconciliation of other Part D items (e.g., federal reinsurance, risk corridors). The Secretary has the option to delay the reporting to manufacturers for the 2023 payment year by up to one year (to September 30, 2025).
Other key changes proposed in the Build Back Better Act include:
As currently constituted, the BBB could drive some of the most material changes in drug pricing in the history of the Medicare Parts B and D programs. The changes are sweeping, with potential for some—such as inflation rebates—to be implemented as soon as 2023. The legislation is not final but is important to keep an eye on as changes develop.
There are many questions and considerations these changes may raise, and Milliman intends to publish additional pieces discussing the implications of these significant changes to the Medicare Advantage and Part D programs. In the meantime, if you have any questions on these changes or would like to discuss the potential impact on your business, please contact your Milliman consultant.
1 The full text is available at https://rules.house.gov/sites/democrats.rules.house.gov/files/BILLS-117HR5376RH-RCP117-18.pdf.
2 The full text of the amendment is available at https://amendments-rules.house.gov/amendments/YARMUT_024_xml211104220514322.pdf.