SummaryNew Avalere analysis finds that the latest version of Medicare negotiation in the Build Back Better Act (BBBA) would lead to a 40% cut on average for Medicare providers that furnish the Part B drugs that are likely to be initially targeted for negotiation.
Pursuing avenues to allow Medicare to negotiate drug prices with manufacturers has been a top policy priority for the Biden administration and Congressional Democrats. The US House of Representatives passed H.R.5376, the “Build Back Better Act,” which would establish a program to enable the Department of Health and Human Services (HHS) to negotiate directly with manufacturers the price of select Part B drugs, Part D drugs, and all insulins. Under the proposal, the HHS Secretary would negotiate Maximum Fair Prices (MFP) for eligible products that have been on the market for an extended period of time but still do not face generic or biosimilar competition, though a set of exceptions also apply.
While outstanding questions remain about how this centralized Medicare negotiation proposal would be operationalized within the existing structures, for Part B drugs, the BBBA envisions implementing the negotiated price by directly cutting physician reimbursement. Instead of basing payment on the drug’s average sales price (ASP) + 6%, the Centers for Medicare and Medicaid Services would tie the provider reimbursement to MFP + 6% add on. The expectation would be that manufacturers would in turn provide greater price concessions to purchasing providers and report these discounts into best price and ASP calculations.
Part B drug reimbursement relies on furnishment of a 6% add-on payment on top of ASP reimbursement to cover a range of fixed overhead costs among providers, including expenses associated with working capital, proper storage, shipping, handling, inventory management, IT infrastructure, patient bad debt, and compliance with drug compounding and preparation requirements, to name a few.
Avalere analysis finds that BBBA negotiation would lead to a total reduction of 39.8% in add-on payments across all providers administering top Medicare Part B drugs that are likely to be targeted for negotiations. Impact is particularly pronounced in the physician setting for all specialties, which would see a 44.2% cut versus 36% in the hospital outpatient departments. These cuts would occur even though the overhead expenditures for negotiated products are likely to remain the same as they are today.
As with prior proposals, oncology and rheumatology practices would have the most significant reductions. Medical oncology, hematology/oncology, and rheumatology practices would experience reductions of 42.9%, 41.3%, and 48.5%, respectively, in add-on payments, according to the analysis.
|Specialty||Percentage Change in Part B Add-on Payment
from Current Law to Medicare Negotiation
|Interventional Pain Management||-39.4%|
|Ophthalmology, Otology, Laryngology, and Rhinology||-36.1%|
The Avalere analysis examined impacts of the BBBA Medicare negotiation proposal solely on the Medicare Fee-for-Service (FFS) market. As drafted, under the BBBA the MFP also applies to Medicare Advantage, so additional payment differences would be expected in that segment. Furthermore, there will be cascading effects on the commercial market, since many commercial contracts are also structured to anchor to ASP-based reimbursement and MFP-based price concessions will be reflected in best price and ASP.
The House of Representatives passed the BBBA shortly after the release of the Congressional Budget Office (CBO) analysis of the bill. Then the focus would be on the Senate, where the level of support for Medicare negotiations remains unclear. As stakeholders continue to evaluate the merits of this proposal, it is important to consider the potential impact on Medicare Part B provider payments and practice viability, which in turn could have implications for access to care and incentives for consolidation.
Funding for this work was provided by the Community Oncology Alliance. Avalere maintained full editorial control.
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Avalere used the 2020 Standard Analytic Files (5% carrier and 100% outpatient) for this analysis. Avalere summed utilization and drug payments paid to providers for the 10 negotiated drugs by provider type and by specialty. Avalere inflated the provider/supplier data to reflect the full size of the market. Negotiated drugs in Part B FFS are assumed to be the top 10 by Part B spending for brand drugs without generic or biosimilar competition based on 2019 spending, eliminating products that are going to be exempt from negotiation based on legislative text.
Drugs with tentative approvals for generics prior to 2027 were excluded from this analysis. Drugs that do not meet the definition of “Certain Orphan Drugs” in the bill were excluded from the analysis, as were drugs and biologicals with less than 1% of total Medicare annual Part B expenditures. The CBO estimated that the average non-federal AMP is approximately 82% of wholesale acquisition cost. Avalere calculated the MFP for each product leveraging the estimate from the CBO report ceiling-price parameters that were outlined in the bill (e.g., years on market).
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