Build Back Better could set new precedent for US drug pricing controls

The US administration is on the cusp of doing what many other administrations have attempted and failed to do – passing new federal legislation that would regulate drug prices in the US. The Build Back Better social spending bill recently passed in the House of Representatives includes unprecedented drug pricing controls for certain drugs covered…


The US administration is on the cusp of doing what many other administrations have attempted and failed to do – passing new federal legislation that would regulate drug prices in the US.

The Build Back Better social spending bill recently passed in the House of Representatives includes unprecedented drug pricing controls for certain drugs covered under Medicare, and establishes inflation rebates that could notably temper the rate of drug price increases over time. The overall legislative package is touted as bipartisan, however most Republicans are likely to be opposed to the bill. Democrats can still manage to get the legislation enacted however by utilizing the budget reconciliation process that would only require a simple majority vote. Senate is anticipated to pass a version of this bill soon, that should include many of the drug pricing policies listed below.

Regulating Medicare prices and price increases

The current White House proposal based on the latest agreement among Democrats has been watered-down significantly from what pricing control proponents were initially advocating. However, it would still have a notable impact on the pharmaceutical industry. It includes setting price ceilings, negotiation of reduced prices for certain Medicare drugs, as well as inflation rebates for drug price increases that are faster than inflation.

  • The legislation would allow Medicare to negotiate the prices for up to 10 highest gross spending Part B and Part D drugs each year, starting from 2023, if they have been on the market for more than nine years (small molecule drugs) or 12 years (biologic drugs) with no generic or biosimilar competition, respectively, and regardless of patent status. Insulins will also be subject to negotiation. Some exceptions apply to certain orphan drugs and those with less than $200 million in Medicare total sales.
  • The Secretary of HHS will consider various factors that might influence the negotiations such as if the medicine addresses an unmet need, if it represents a therapeutic improvement over existing treatments, and the extent of innovation of the drug among others.
  • The Secretary will publish lists of “negotiation-eligible” high-cost Part B, Part D drugs and insulins, as well as the “selected” drugs, and will enter into agreements with the latter following negotiations to establish a “maximum fair price”, that will also be published on the CMS website and in the Federal Register.
  • The regulated prices for “selected drugs” will come into effect after two years following the negotiations, starting from 2025, with the number of products subject to negotiations gradually increasing from 10 in 2025 to 20 by 2028 and beyond.
  • Price ceilings will be set based on 75% of the 2021 non-federal average manufacturer price (AMP) for small molecule drugs between 9 and 12 years since initial exclusivity (short-monopoly drugs). All drugs, including biologics, with 12-16 years since their exclusivity was first issued will be capped at 65% of the 2021 non-federal AMP (post-exclusivity drugs). For drugs with more than 16 years on the market, the negotiated prices cannot exceed 40% of the 2021 non-federal AMP (long-monopoly drugs).
  • Medicines sold by “small biotechs” (companies that rely on one drug for at least 80% of their revenue, and whereby the product accounts for less than 1% of overall Medicare drug spending) will be exempt from negotiations for three years until 2026, with negotiated prices coming into effect two years later starting from 2028.
  • Some selected drugs will be subject to a renegotiation process starting from 2027.
  • Companies that fail to negotiate on their prices will be subject to an excise tax.

All single-source Medicare drugs will also be subject to “inflation rebates” if prices increase faster than inflation starting from 2021 as a base year for 2022. The inflation rebates on drug price increases would apply to both Medicare and the private sector.

Drugs most likely to be targeted for Medicare price negotiations

In order to estimate how many products could be impacted by the law, we looked at the number of Medicare reimbursed products with revenues exceeding $200 million in 2019 (Source: CMS). In Part B, there were 44 drugs with total spending exceeding $200 million in 2019. Meanwhile, in Medicare Part D, around 165 drugs had total sales exceeding that cutoff (excluding rebates). It is worth noting however, that the CMS lists products with the same INN but different brand names as individual products.

Assuming the Secretary selects drugs that have been on the market at least 7 years in 2023, we further narrowed down the sample to see how many of the high-cost Part B and Part D drugs met this requirement. Using our proprietary pricing and access database, GPI pulse™, we identified 382 INNs for single-source branded drugs that were launched in 2015 or earlier in the US. The list was reduced to 230 for single-source branded drugs that were launched in 2012 or earlier.

Source: GPI pulse™

Interestingly, Humira was not initially at the top of our list of negotiation-eligible drugs for Part D, because the CMS has three different products listed for Humira. Once combined, Medicare Humira spending totalled USD3.4 billion for 2019.

Source: GPI pulse™

Mounting pressure on US drug prices

The independent Institute for Clinical and Economic Review (ICER) has recently published its 2020 list of drugs with Unsupported Price Increases. The list of seven drugs were among the top 250 drugs by US sales, with price increases at least 2 percentage points higher than the medical inflation rate based on list price, and net prices also increasing year on year, with pricing rather than volume contributing to the largest increase in US spending. This list of 10 prescription drugs was further narrowed down to those with no new moderate-to-high quality evidence published in 2019 and 2020 that would support a claim of additional clinical benefit. ICER estimated that net price increases on these seven drugs contributed to an additional $1.67 billion in annual drug spending – with one drug, Humira, representing the bulk of this additional spending ($1.4 billion).

Meanwhile, the CMS has recently announced that Medicare part B monthly premiums will increase significantly in 2022 by around $21.60 to $170.10 – with the potential coverage of Alzheimer’s drug Aduhelm (aducanumab; Biogen, US) specifically named as partially responsible for this increase. The CMS has noted that the increased premium reflects the need to increase contingency reserves given the significant uncertainty with regards to the coverage of Aduhelm. The drug is currently subject to a National Coverage Determination (NCD) analysis by the CMS, and the agency could end up restricting the drug’s use by Medicare patients. CMS Administrator Chiquita Brooks-LaSure noted that “The increase in the Part B premium for 2022 is continued evidence that rising drug costs threaten the affordability and sustainability of the Medicare program.” Interestingly, she added that the administration is consequently advancing drug pricing reforms to make drugs more affordable and equitable through “competition, innovation, and transparency” with no mention of government-imposed pricing policies making their way through Congress.

The future of drug pricing reforms in the US

The Congressional Budget Office has now evaluated the impact of the healthcare spending portion of the policy on federal spending, and this provides a good estimate on the potential impact this law could have on the pharmaceutical industry. According to the CBO estimates, the drug pricing provisions in the package could generate savings for the government of $160 billion over the next decade, including $80 billion stemming from Medicare negotiated drug prices, and nearly $80 billion by capping drug prices increases to the rate of inflation. The CBO also predicted a slight negative impact on research & development driven by a notable reduction in pharmaceutical revenues, that would likely result in 1 less drug entering the market over the next 10 years. This number however is expected to rise to 4 and 5 fewer drugs for each decade after that, respectively. Under the status quo, the total number of new drugs anticipated over the next 30 years is around 1,300.

Even if the impact on the industry and innovation is deemed minimal, compared to other drug pricing proposals such as H.R.3, the Build Back Better drug pricing policies could still set a new precedent for negotiation of Medicare drug prices by the government. This could eventually facilitate expansion of the list of eligible products to encompass other drugs of concern that are projected to significantly impact program spending as noted above. The pharmaceutical industry group PhRMA has published a study demonstrating a link between government-imposed drug pricing policies in Europe and a reduction in innovation and R&D. Specifically, for every 10% reduction in drug prices resulting from “government price setting”, there was a 17% decrease in late-stage research funding, and an 8% increase in the delay of access to medicines.

Many health policy advocates agree however that it is likely only a matter of time before laws are introduced in the US that would allow Medicare to negotiate drug prices. If there was a Doomsday clock tracking how close the US was getting to passing drug pricing legislation, I would say it is now merely a few seconds to midnight.

By Margaret Labban, PhD, Pricing & Market Access Solutions Manager, Global Pricing Innovations

Have a question for our experts? Submit your query below, and one of our experts will come back to you.

Sign up for our Newsletter

Share this Blog: