House and Senate Democrats are currently working toward passage of the Build Back Better Act (BBBA; H.R.5376) through the budget reconciliation process. Congressional leaders recently announced an agreement on a set of drug pricing proposals, including Part D redesign, to help offset the bill’s costs and reduce out-of-pocket (OOP) costs for beneficiaries in the Part D program. The Part D redesign policies examined by Avalere for this analysis are detailed in the BBBA, the Lower Costs, More Cures Act (H.R.19/S.3129), and the Prescription Drug Price Reduction Act (PDPRA).

All proposals would eliminate the coverage gap and extend the initial coverage phase to the catastrophic threshold, cap beneficiary OOP costs, and redistribute a portion of government liability in the catastrophic phase to plans as well as to manufacturers via a new manufacturer discount program, as shown in Table 1. Manufacturers currently pay discounts on brand-drug costs for beneficiaries in the coverage gap who do not receive the Low-Income Subsidy (LIS).  For all redesign policies examined, the existing discount program would be replaced by discounts in both the initial coverage and catastrophic phases for both LIS and non-LIS beneficiaries.

Note: Percentages for plan liabilities, government reinsurance, and manufacturers discount reflect those for brand drugs under each proposal.

1.  Manufacturer discounts under current law apply to non-LIS claims only. All other Part D redesign proposals require manufacturer discounts on both LIS and non-LIS claims. LIS beneficiaries pay fixed copays for prescription drugs under current law.
2. Redesign proposal in BBBA reflects bill released by House Committee on Rules on November 3, 2021.
3. The manufacturer discount structure of 10% in initial coverage and 10% in catastrophic is comparable to the proposal outlined in S.2327 (Cassidy/Menendez Seniors Prescription Drug Relief Act).
4. The PDPRA phases in reductions in reinsurance over 3 years: 60% in first year of implementation, 40% in second year, and 20% in the third year. The PDPRA similarly phases in the increase in plan liabilities: 26% in the first year, 46% in 2024 the second year, and 66% in the third year.

The redistribution of liability across all phases of coverage will lead to greater increases in mandatory manufacturer discounts among products with spending that tends to be higher in the catastrophic phase of the benefit and for products with higher LIS spending. These categories of drugs include therapeutic areas that fall under the Centers for Medicare & Medicaid Services’ (CMS) classes of clinical concern known as the  “6 protected classes” (6PC). Avalere previously assessed the estimated growth in manufacturer discounts under Part D redesign in certain therapeutic areas, which included a subset of protected classes. Avalere expanded this analysis to include all 6PCs, which have high levels of utilization in the catastrophic phase and a significant share of spending by the LIS population.

As shown in Table 2, the estimated growth rate in manufacturer discounts would increase for 6PC drugs in each of the 3 redesign policies, by 661%, 301%, and 409%, respectively.  By comparison, manufacturer discount liability across all brand Part D drugs, while also higher under each of these proposals than under current law, would increase less substantially, at 153%, 63%, and 64%, respectively. The impact of the redesign policies on mandatory discounts varies but is consistently high across all therapeutic areas within the protected classes.

Note: 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. To identify drug products in protected classes, Avalere linked drugs found in 2019 prescription drug event data to drug products in protected classes listed in the US Pharmacopeia Medicare Model Guidelines V8 and excluded products that were to identify products brand originator drugs with direct generic competitors and those that were line extensions. Source: Avalere analysis of 2019 Part D drug event data.

Given growth in reinsurance costs, lawmakers have been interested in policies that increase financial liability among manufacturers and plans within the catastrophic phase to create incentives for lower program spending. As Congress explores ways to cap OOP spending in Part D and slow the growth in reinsurance costs, a redistribution of manufacturer discounts across the program remains central to each proposal. Going forward, policymakers should evaluate how potential changes to the Part D program could impact formularies and beneficiary access to new and existing treatments, particularly for vulnerable populations and beneficiaries who require treatments that fall into the 6PCs.

Funding for this work was provided by Gilead Sciences, Inc. Avalere maintained full editorial control.

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Methodology

Avalere used 2019 Medicare Part D Drug Event data accessed under a research-focused data use agreement (DUA) with CMS to simulate the Part D benefit for 2024 under both current law, the Lower Costs, More Cures Act, the 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.

To model the current law benefit design, Avalere deflated 2024 benefit parameters to 2019 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 2019 negotiated prices and assumed scripts, plan-specific formulary coverage, tier placement, and cost sharing for 2019. For non-formulary drugs, Avalere assumed placement on the non-specialty tier with the highest cost sharing. LIS status for each member month and cost sharing for scripts filled during LIS member months were reduced to statutory limits.

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 did not model behavioral changes that may result from these 3 proposals. To identify drug products in protected classes, Avalere linked drugs found in 2019 PDE data to drug products in protected classes listed in the USP Medicare Model Guidelines V8 files and excluded products that were brand originator drugs with direct generic competitors and those that were line extensions. Avalere summed discount liability for all products by drug group under current law, BBBA, the Lower Costs, More Cures Act, and PDPRA 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 2021 Medicare Trustees Report.