How Build Back Better Might Impact Medicare Part D Drug Spending

November 18, 2021 - The Build Back Better Act includes measures that aim to reduce Medicare Part D drug spending and bolster the ability for both Medicare Part D plans and potentially private payers to control drug spending, Kaiser Family Foundation (KFF) researchers shared in a recent report.

The Build Back Better Act, introduced in the House of Representatives, suggests five ways to bring down drug costs.

First, this law would adjust the noninterference clause—which prevents Medicare from negotiating Part D drug prices—to allow the federal government to negotiate drug prices for therapies that are expensive and that do not have a generic or biosimilar alternative with Medicare Part B and Part D coverage. 

Eligible drugs would be chosen from the top 50 drugs that contribute the most to Medicare Part D spending and to Medicare Part B spending, including insulin, with some exceptions. The maximum fair price would be determined based on the non-federal average manufacturer price.

The law would go into effect in 2025, at which point Medicare would be able to negotiate the prices of ten Part D drugs. The number of drugs that would be eligible for Medicare negotiation would increase over time, with 15 becoming eligible in 2026 and 2027 and 20 becoming eligible in 2028. In 2028, Part B drugs would be eligible for Medicare price negotiations.

Drug companies that fail to comply with Medicare negotiations would be subject to penalties.

The Congressional Budget Office (CBO) has not completed its analysis of the Build Back Better Act. However, the KFF researchers provided their expectations for how the law would impact healthcare spending and prescription drug spending.

CBO has released potentially relevant estimates—unattached to this specific law—that project that Medicare drug price negotiation would save Medicare $448 billion and $12 billion for subsidized Affordable Care Act marketplace plans and the Federal Employees Health Benefits Program. Revenue would grow $45 billion over the course of the following decade. 

Some CBO savings estimates on this strategy have been higher, though.

“It is likely that the drug negotiation provision in the Build Back Better Act would generate substantially lower savings than either of these earlier proposals due to a reduction in the number and type of drugs eligible for negotiation and modifications to the upper limit for the negotiated price,” the researchers added.

Purchaser Business Group on Health recently announced its approval of this approach, arguing that it would allow employers to invest more heavily in healthcare benefits as well as increasing wages.

Second, starting in 2023, the law would demand that drug manufacturers pay a rebate that exceeds the inflation rate for most single-source drugs and biologicals that Medicare covers. Inflation rebates could save $36 billion or up to $82 billion, based on CBO analyses, and the savings might diminish over time.

Third, the law would also limit cost-sharing for insulin to $35 for all Part D plans. Private payers would not have to cover all insulin products. Like the rebates, this part of the law would take effect in 2023.

Fourth, Medicare Part D plans would also have to cover all vaccines free of charge starting in 2024 for any vaccine that the Advisory Committee on Immunization Practices (ACIP) recommends.

Finally, the law would repeal the drug rebate rule, an anticipated move by the Biden administration to undo the former Trump administration's policies.

Repealing the rebate rule would avert the $170 billion to $196 billion in spending that the rule might have accrued over the decade following the rule’s implementation. Moreover, the repeal would reduce expenditures in the budget—CBO had already started accounting for the rebate bill—by $50.8 million from 2023 to 2026.

These policies have yet to be signed into law and still have an uncertain future.