Background on Senate Finance Committee Updated Drug Pricing Draft Language

On July 6, the Senate Finance Committee released its updated draft of the drug pricing provisions in the reconciliation package. The new text includes several updates to the Medicare negotiation policy, which shifts the set of drugs that are eligible and likely to be selected for government negotiation.¹

Changes to Eligible Drugs

Drug pricing provisions included in the House-passed Build Back Better Act (BBBA) would have automatically subjected all insulin products to government negotiation. Insulins also did not count toward the total number of drugs that could be selected for negotiation each year.

The July 6 Senate draft removes insulins as a category of drugs that would automatically be subject to negotiation. Insulins could still be selected for negotiation if they fall within the top spending drugs based on total Part B and D expenditures and meet the other negotiation-eligible drug criteria (i.e., single-source products that have been available for at least 7 years for small molecule drugs or at least 11 years for biologics, from the time of Food and Drug Administration (FDA) approval to the selected drug publication date).²

Changes to Drug Selection and Negotiation Timeline

The new Senate Finance Committee language clarifies the exact number of drugs the Secretary must select for negotiation each year and delays implementation by 1 year:

• 2026 (only Part D drugs eligible for negotiation): 10 drugs based on Part D spending
• 2027 (only Part D drugs eligible for negotiation): 15 drugs based on Part D spending
• 2028 (first year both Part B and D drugs are eligible for negotiation): 15 drugs based on combined Part D and Part B spending
• 2029 and beyond: 20 drugs based on combined Part D and Part B spending

The updated draft also includes new language that would allow the Secretary, at the request of a biosimilar manufacturer, to delay inclusion of certain biologics on the selected drug list for up to 2 years if the Secretary determines that there is a “high likelihood” that the biosimilar will be licensed and marketed before the negotiated price would take effect.³ Biologics that have been approved for 16 years or more would not qualify for the delay. If the biosimilar does not come to the market during the 2-year period, the originator biologic manufacturer would be required to pay a rebate for the maximum fair price (MFP) amount and the biologic would be included in the selected drug list for the next applicable price period.

Additionally, the updated draft revises the timeline for negotiation, with the first negotiation process beginning September 1, 2023, for the initial 2026 price applicability year. Under the House-passed version, the first negotiation process would have begun on February 1, 2023, for the initial price applicability year of 2025.

*Other information would include R&D costs; market data for the drug, including distribution of sales across different programs and projected future revenues, unit costs of production and distribution, prior federal financial support, data on patents and existing pending exclusivity, national sales data, information on clinical trials, and information on unmet medical needs.

Avalere’s Analysis

Avalere updated its previous analysis on the impact of the House-passed BBBA negotiation policy to reflect changes in the recent Senate Finance Committee reconciliation package, focusing on the specific aspect of removing insulins as a category of drugs that would be automatically selected for negotiation and the updated implementation timeline. While not included as part of this analysis, the new provision allowing for the delay of certain biologics onto the selected drug list could also impact the drugs that may be selected for negotiation. The analysis also does not account for future changes in drug spending, pricing, or utilization, but provides a directional assessment of drugs eligible and likely to be selected for government negotiation across years based on available information.

If insulins are not automatically included as negotiated products, 100 drugs would be subject to Medicare negotiation during 2026–2031. The set of drugs estimated to be selected for negotiation includes Parts B and D drugs with high total program expenditures, spanning several therapeutic areas including oncology, autoimmune, pulmonary, diabetes, anti-infectives, and cardiovascular conditions.

In 2026, the first applicable price year under the updated Senate Finance Committee text, the 10 high-spending Part D drugs that Avalere estimates are likely to be negotiated represent approximately $34.5 billion in total Medicare Part D spending—or more than 17% of annual Part D spending—based on 2020 expenditures. In total, the set of Part D drugs that could be subject to government negotiation from 2026–2031 represents approximately 44% ($86.8 billion) of 2020 Part D spending.

Additionally, Avalere estimates that of the 15 drugs that are likely to be selected for negotiation in 2028 (the first year in which Part B drugs are eligible for negotiation), 7 drugs have spending in Part B, accounting for $11.9 billion (or 31%) of Part B drug spending based on 2020 expenditures. In total, the set of drugs with Part B expenditures that could be negotiated from 2028–2031 represents $19.3 billion—or 50%— of total Part B drug spending in 2020.

In total, the Part B and D drugs that could be selected for negotiation from 2026–2031 represent 45% ($106 billion) of all Medicare Part B and Part D drug spending in 2020.

Stakeholders should understand how the changes to the negotiation policy will impact their pricing and contracting strategies, competitive market dynamics, and patient access.

Funding for research provided by the Pharmaceutical Research and Manufacturers of America (PhRMA). Avalere maintained editorial control.

Methodology

Avalere approximated the negotiation-eligible drugs under the Medicare negotiation policy as outlined in the updated Senate Finance Committee draft text released on July 6. Avalere’s analysis accounts for the changes in the negotiation policy related to the updated negotiation timeline and removal of insulins as a category of drugs that would automatically be selected for negotiation but does not reflect the provision that allows the Secretary to delay the inclusion of certain biologics on the selected drug list for potential biosimilar market entry.

Sources used for this analysis include the Centers for Medicare & Medicaid Services Drug Pricing Dashboards to identify top drugs by Part B and D spending in 2020; Medispan data to identify single-source and multi-source drugs; and Drugs@FDA, the FDA Purple Book, the FDA Orange Book, and other publicly available FDA resources to identify small molecule drugs (approved through a New Drug Application) vs. biologics (approved through a biologics licensing pplication), FDA date of approval, orphan drug status, and biosimilars and generics that have been approved or tentatively approved but not yet marketed.

Avalere’s updated list reflects additional tentative generic tentative and final approvals since the previously published analysis.

Notes

1. Avalere’s analysis reflects changes in the negotiation policy related to the updated negotiation timeline and removal of insulins as a category of drugs that would automatically be selected for negotiation. Avalere’s analysis did not account for the new provision that would allow the Secretary to delay the inclusion of certain biologics on the selected drug list in the case of likely biosimilar market entry.
2. Certain orphan drugs, plasma-derived products, and drugs that represent less than $200 million in Medicare Part B and D spending are excluded. In addition, a temporary exclusion for “small biotech drugs” applies through 2028.
3. The Secretary would determine that there is a “high likelihood” of the biosimilar being licensed and marketed by the applicable price period if the biosimilar application has been accepted for review or approved by the FDA and information from the manufacturer requesting the delay provides “clear and convincing evidence” that the biosimilar will be marketed by the specified time period.