Hogan Lovells

The U.S. House of Representatives is considering dueling proposals related to drug pricing under Medicaid and Medicare, including the Republican-led H.R. 19, the “Lower Costs, More Cures Act of 2021” and a reintroduced version of the Democrat-led “Elijah E. Cummings Lower Drug Costs Now Act,” originally introduced in 2019 (and hereinafter referred to) as H.R. 3. Although the bills diverge in various material respects, both would implement sweeping changes related to drug coverage and price reporting. At the same time that the House considers these proposals, Senate Democrats are urging President Biden to include major drug pricing legislation in the second phase of his infrastructure plan. The White House has been silent to date on whether drug pricing will be addressed in the next proposed infrastructure package.

We have summarized certain key provisions of H.R. 19 and the updated version of H.R. 3 below, as well as other activity suggesting Congress’s strong interest in enacting reform. At minimum, the introduction of these bills makes clear that both parties are willing to propose sweeping changes to drug regulation at the federal level. But it remains to be seen what, if any, proposal will ultimately be enacted into law.

I. Background

This latest flurry of legislative proposals is part of an ongoing dialogue in Congress on the issue of drug costs. Recent years have seen a number of other, similar high‑profile efforts at targeting drug pricing—including the “Prescription Drug Pricing Reduction Act of 2019” (PDPRA), which we summarized in an alert available here, and the original introduction of H.R. 3 in 2019.

The PDPRA would have, among other things, imposed new transparency requirements on drug manufacturers, Medicare Part D plan sponsors, and pharmacy benefit managers; implemented new rules regarding manufacturer Medicaid drug rebates; restructured the Medicare Part D benefit; and added new caps on payment rates for Medicare Part B, biologicals, and biosimilars. H.R. 3 was then subsequently proposed in 2019 by House Democrats as a more aggressive counterproposal. Among other reforms, H.R. 3 proposed a new process under which the Secretary of Health and Human Services (Secretary) and drug manufacturers would negotiate the price of certain drugs.

II. Proposed legislation

A. H.R. 19: Lower Costs, More Cures Act of 2021

H.R. 19 was released by House Republicans on April 21, 2021 and was introduced by House Energy and Commerce Committee Ranking Member Cathy McMorris Rodgers (R-WA), House Ways and Means Committee Ranking Member Kevin Brady (R-TX), and House Education and Labor Committee Ranking Member Virginia Foxx (R-NC). According to the accompanying press release, H.R. 19 is intended “to lower drug costs for Americans without limiting access to cures.” A summary of the bill is available here. The Republican Committee Ranking Members also published a letter encouraging their colleagues to support the bill.

Medicaid Drug Rebate Program changes: H.R. 19 would adopt modifications to the Medicaid Drug Rebate Program (MDRP), including the following:

  • Expansion of covered outpatient drug definition: Section 207 would permit state Medicaid programs to treat drugs paid for as part of a bundled sale in the outpatient setting as a “covered outpatient drug” where those drugs are paid for directly by the state or as part of a demonstration project under the Medicaid program. This change would permit states to increase manufacturer rebate liability by expanding the drugs eligible for a rebate in a given state. It also could expand the universe of drugs subject to discounts under the 340B Drug Pricing Program.

  • Creation of value-based pricing agreement pathway: Section 206 would enable state Medicaid programs to pay for potentially-curative, one-time‑use covered outpatient drugs through risk‑sharing value-based agreements, which must include installment based payments, whether for their Medicaid fee-for-service populations or Medicaid Managed Care, subject to approval by the Centers for Medicare & Medicaid Services (CMS). As CMS must approve such agreements, this provision is not substantially different from the current ability of states to enter into CMS‑approved supplemental rebate agreements under the MDRP, although currently only fee‑for-service prices under CMS‑authorized supplemental rebate agreements are excluded from the manufacturer’s best price.

  • Mandatory WAC reporting: Section 204 would require manufacturers participating in the MDRP to report the wholesale acquisition cost (WAC) for covered outpatient drugs for each applicable rebate period, including all drugs sold under a new drug application. Reported WAC information would be publicly posted on the CMS website.

Medicare Part B reimbursement: H.R. 19 would establish sweeping changes to how Medicare Part B reimburses for drugs and biological products and related services. Among other reforms, Section 103 would establish a variable average sales price (ASP)-based payment rate methodology for drugs and biological products (other than autologous cellular immunotherapies) covered under Medicare Part B and furnished on or after January 1, 2022. These variable payment rates would apply in lieu of the existing payment rate of 106 percent of ASP. In addition, Section 104 would establish a cap on Part B add-on payments, which would be $1,000 with respect to most drugs or biological products (and $2,000 with respect to autologous cellular immunotherapies) for each year from 2022 through 2029 (and would be adjusted in each subsequent year after 2029 based on the consumer price index).

H.R. 19 also would impose other significant Part B changes. For instance, Section 105 would equalize payment for drug administration services as between an excepted (i.e., grandfathered) off-campus outpatient department of a provider, and a non-excepted (i.e., non-grandfathered) off-campus outpatient department of a provider; Section 501 would change the payment methodology for biosimilar biological products during the initial period when a full quarter of ASP sales data is unavailable; and Section 102 would impose a requirement on manufacturers to pay CMS refunds with respect to discarded units of single-dose container or single-use package drugs.

Medicare Part D changes: H.R. 19 would substantially redesign Medicare Part D starting on January 1, 2022. Among other things, Section 121 would eliminate the coverage gap and lower the out-of-pocket threshold to $3,100 in 2022, indexed thereafter to growth in Medicare Part D spending. The bill would sunset the existing coverage gap discount program (under which manufacturers pay 70 percent of drug costs in the coverage gap) starting in 2024, and establish a new discount program under which manufacturers would be required to provide Medicare Part D covered beneficiaries who have met their deductible with a 10 percent discount off of the drug’s negotiated price at the point of sale. The proposed manufacturer discount program does not appear to apply to Low-Income Subsidy beneficiaries.

Drug price transparency: H.R. 19 includes several provisions related to drug price transparency, including requiring manufacturers to report certain price increases to the Department of Health and Human Services (HHS), which would post such manufacturer reports on the HHS website.

B. Re-introduced version of H.R. 3: Elijah E. Cummings Lower Drug Costs Now Act

On April 22, 2021, just one day after the release of H.R. 19, House Democrats released an updated version of the Elijah E. Cummings Lower Drug Costs Now Act—which, as noted, was originally introduced in 2019. Hearings have been scheduled for May 4, 2021. The re‑introduced bill is not yet numbered.

Drug price negotiation for selected Medicare drugs: Section 101 would establish a “Fair Price Negotiation Program” intended to reduce the cost of select “high priced” single source drugs under Medicare Part B and Part D. The Secretary would select and publish a list of negotiation-eligible drugs (at least 25 during 2024, and at least 50 during 2025 and each year thereafter) and then enter into manufacturer agreements with respect to such drugs. Under the agreements, the Secretary and the manufacturer would negotiate during a “voluntary negotiation period” to establish a “maximum fair price” for each selected drug. The Secretary would publish the maximum fair prices in the Federal Register, and any manufacturer of a selected drug that does not provide the applicable maximum fair price to fair price eligible individuals under Medicare Part D or their respective provider would be subject to a civil monetary penalty equal to 10 times the difference between the price made available and the maximum fair price. In addition, any manufacturer of a selected drug that enters into an agreement regarding maximum fair price that is in violation of a requirement imposed under the agreement would also be subject to a civil monetary penalty of not more than $1 million for each violation.

Section 102 would establish excise taxes on selected manufacturers during periods of non-compliance. In addition, section 103 would establish a “Fair Price Negotiation Implementation Fund” for the Secretary to carry out portions of the Act.

Drug rebates for excess price increases: The re-introduced H.R. 3 would establish Medicare Parts B and D prescription drug inflation-based rebates, similar to those that currently apply under the MDRP. Section 201 would establish Medicare Part B rebates where the price of a single source drug increases faster than the rate of inflation, and Section 202 would establish similar rebates under Medicare Part D. Section 203 would require a report by the Secretary of Labor to Congress on potential models under which manufacturers would provide inflation-based rebates with respect to group health plans and health insurance coverage offered in the group market (and associated potential enforcement mechanisms). Further, it would require the Secretary of Labor to, not later than December 31, 2024, promulgate regulations implementing such a model, if the Secretary of Labor determines that the prices of a sufficient number of drugs have increased over a period of time at a percentage exceeding the rate of inflation.

Part D changes: Section 301 would redesign the Medicare Part D program starting in 2024, also to eliminate the coverage gap, by lowering the out-of-pocket threshold to $2,000, indexed thereafter to growth in Medicare Part D spending, and to phase out the coverage gap discount program. A new manufacturer discount program also would be introduced under which a manufacturer would be required to provide a discounted price to applicable beneficiaries of 10 percent of the Part D negotiated price for spending below the $2,000 threshold, and a discounted price of 30 percent of the negotiated price for spending above the threshold. The proposed manufacturer discount program does not appear to apply to Low-Income Subsidy beneficiaries, similar to H.R. 19.

Drug price transparency: Section 401 also includes drug price transparency requirements similar to those in H.B. 19, requiring manufacturers to report certain price increases to HHS, which would be posted on HHS’s website.

Finally, a number of proposals in the original version of H.R. 3 were not included in the re‑introduced version, including program improvements for Medicare Part B beneficiaries eligible for low-income subsidies and coverage under Medicare for dental, vision, and hearing treatment and care.

III. What’s next

It is not clear if either H.R. 19 or the newly re-introduced H.R. 3 will be enacted into law, especially because H.R. 19 and the re-introduced H.R. 3 represent only the latest in a salvo of newly introduced drug pricing bills. The House Energy & Commerce Committee’s Health Subcommittee announced that it will hold a hearing on May 4 to consider legislation to lower drug pricing costs. Congress also is currently considering or developing other bills. For instance, in late March of 2021, a coalition of progressive Democrats released their own package of bills intended to reduce the costs of prescription drugs, which proposed a series of sweeping policy changes, including mandating foreign reference pricing, directing the Secretary to negotiate drug prices under Medicare Part D, allowing importation of medicines from Canada (and other countries), and various other policy changes. Further, the bipartisan Problem Solvers Caucus, which consists of 56 members of the House (equally divided between Democrats and Republicans), are currently drafting a drug pricing bill.

The bipartisan interest in drug pricing reform is significant. Although H.R. 19 has been positioned as a counter-point to H.R. 3, and Republican Committee Leaders have expressed strong opposition to a number of H.R. 3 provisions, the bills contain similar Medicare Part D and drug pricing transparency reforms and therefore, through continued engagement, lawmakers may be able to reach agreement on a final bill in the next year. We will continue to monitor developments in drug pricing legislation as they progress.

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