Congress recently passed the FY 2021 Budget Resolution. This resolution includes reconciliation instructions that create a pathway for COVID-19 relief legislation to pass with a simple 50-seat majority vote in the Senate. While offering an easier pathway for legislation to pass the Senate, reconciliation requires that the legislation not increase the federal deficit over the long term; therefore, policymakers may seek options—including drug pricing policies—that offset the cost of other permanent spending increases. Widely supported components of 3 Part D benefit redesign proposals introduced in 2019 may present options that have already received substantial consideration in both chambers.

While key elements are similar across the 3 proposals, differences in specific policy parameters drive significant impacts to mandatory manufacturer discount liabilities for products in key therapeutic areas. All 3 proposals would change the Part D benefit phases—including the initial coverage period, the coverage gap, and the catastrophic phase—and stakeholder responsibilities for drug costs in each phase. These proposals would all eliminate the coverage gap, extend the initial coverage phase to the catastrophic threshold, create a cap on beneficiary out-of-pocket costs at the catastrophic threshold, decrease government reinsurance liabilities, increase plan liabilities in the catastrophic phase, and create a new manufacturer discount program.

* Percentages reflect those for brand drugs under these 3 proposals.

** PDPRA phases in reductions in reinsurance: 60% in 2023, 40% in 2024, and 20% in 2025. PDPRA also phases in increases in plan liabilities: 26% in 2023, 46% in 2024, and 66% in 2025.

Manufacturers currently pay discounts on brand-drug costs for beneficiaries in the coverage gap who do not receive the Low-Income Subsidy (LIS). The existing discount program would be replaced by discounts in both the initial coverage and catastrophic phases for both LIS and non-LIS beneficiaries. Avalere analysis shows that congressional decisions on key policy levers, including discount percentages in each phase of the benefit, can have significantly different impacts on total manufacturer discount liabilities for specific products and therapeutic areas.

As shown in Table 2, under the Part D redesign provisions of all 3 bills, the categories of drug that would have the highest increases in Part D discount liability include cancer treatments, antivirals, and treatments for neurological conditions, such as multiple sclerosis. For drugs in these therapeutic areas, the discount in the initial coverage and catastrophic phases would be significantly larger than the current 70% discount for non-LIS beneficiaries in the coverage gap.

Note: Does not include the impact of Office of Inspector General’s (OIG) Revisions to Safe Harbors Under the Anti-Kickback Statue final rule due to pending litigation and uncertainty of implementation under the Biden administration. Excludes beneficiaries with claims paid by Employer Group Waiver Plans or the Limited Income Newly Eligible Transition Plan and beneficiaries residing outside the 50 states and DC. Assumes no change in pricing due to proposed inflation-based rebate or interaction with other provisions in each proposal. Drug groups based on 2-digit Generic Product Identifiers from the Medispan® database; examples include 4-digit GPI drug class names for the drugs with high total Part D spending in each GPI-2 group. Source: Avalere analysis of 2018 Part D Drug Event data

As the new Congress considers COVID-19 relief legislation, policies that reduce federal spending with a history of bipartisan support, like reforms to the Part D benefit design, could advance. How the differences in the current proposals, as illustrated above, are resolved will have considerable impact on stakeholders. Manufacturers, plans, and patients should consider how a potential compromise policy may impact patient affordability, drug pricing and contracting strategies, and plan formulary and benefit design development.

Methodology

Avalere used 2018 Medicare Part D Drug Event data accessed under a research-focused data use agreement (DUA) with the Centers for Medicare and Medicaid Services (CMS) to simulate the Part D benefit for 2023 under both current law, H.R.19/S.3129, PDPRA, and H.R.3. Avalere did not include the impact of the OIG’s Revisions to Safe Harbors Under the Anti-Kickback Statute final rule due to pending litigation and the uncertainty of implementation under the Biden administration.

Per the DUA’s requirement, Avalere identified a random sample representing less than 20% of the total Part D population. Avalere excluded the following populations from the analysis: those for which benefit design data is missing, including those with claims paid for by an employer group waiver plan; those residing outside the 50 states and DC; and those enrolled in the Limited Income Newly Eligible Transition program.

Avalere arrayed each beneficiary’s Part D claims chronologically based on prescription fill dates. We then used Part D formulary and benefit design data to identify formulary coverage for each claim based on national drug codes and determined tier placement and cost sharing for each drug on formulary. In addition, we identified LIS status for each claim based on the monthly LIS cost-sharing group.

To model the current law benefit design, Avalere deflated 2023 benefit parameters to 2018 dollars using annual percentage increases in Part D per capita benefits to account for policy changes to the calculation of the catastrophic threshold under current law. Avalere used 2018 negotiated prices and assumed scripts filled at in-network preferred pharmacies in determining beneficiary out-of-pocket costs. Avalere also assumed 2018 plan-specific formulary coverage, tier placement, and cost sharing for 2018. For non-formulary drugs, Avalere assumed placement on the non-specialty tier with the highest cost sharing (often non-preferred tier). LIS status for each member month and cost sharing for scripts filled in those member months were reduced to statutory limits.

• H.R.19/S.3129: To model H.R.19/S.3129, Avalere applied plan-specific deductibles, continued initial coverage benefit design to an out-of-pocket cap for LIS and non-LIS, set the out-of-pocket cap equal to $3,100 in 2023 dollars, changed cost sharing in initial coverage to 15%, and created a 10% manufacturer discount in both the initial coverage and catastrophic phases.
• PDPRA: To model the PDPRA, Avalere applied plan-specific deductibles, continued initial coverage benefit design to an out-of-pocket cap for LIS and non-LIS, set the out-of-pocket cap equal to $3,100 in 2023 dollars, changed cost sharing in initial coverage to 20%, and created a 7% and 14% manufacturer discount in the initial coverage and catastrophic phases, respectively.
• H.R.3: To model H.R.3, Avalere applied plan-specific deductibles, continued initial coverage benefit design to an out-of-pocket cap for LIS and non-LIS, set the out-of-pocket cap equal to $2,000 in 2023 dollars, and created a 10% and 30% manufacturer discount in the initial coverage and catastrophic phases, respectively.

Avalere did not model behavioral changes that may result from these 3 proposals. Avalere used 2-digit generic product identifiers from the Medispan® database to identify products in each drug grouping by national drug code. Avalere summed discount liability for all products by drug group under the current law, H.R.19/S.3129, PDPRA, and H.R.3 simulations. Results from this sample are weighted to reflect the broader Part D population based on their share of total enrolled member months. Avalere inflated all outputs to reflect drug cost and enrollment growth using data from CMS’s Final Call Letters and the 2020 Medicare Trustees Report.

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