lower drug prices

The Inflation Reduction Act and 340B: What will drug-price negotiations mean for covered entities?

The Inflation Reduction Act represents the fulfillment of decades worth of efforts to let Medicare, the nation’s largest purchaser of drugs, negotiate prices directly with pharmaceutical companies. But 340B covered entities also stand to be affected by the change in ways both good and bad.

Signed in August before the midterm elections, the law also includes provisions addressing taxes and climate change. For our purposes, the Inflation Reduction Act would have been better referred to as a drug-pricing reform law.

Nevertheless, here’s what it will do and what it could mean for 340B.

The specifics

The law authorizes Health and Human Services to negotiate prices on high-cost prescription drugs covered by Part D, with those new prices going into effect in 2026. (Democrats were unsuccessful in their efforts to broaden the reforms to private insurance plans.)

Specifically, HHS would identify 100 drugs without competition that have been on the market for at least nine years and biologics that have been on the market for 13 years that have the highest spending under Medicare. Drugs with available generic or biosimilar versions would not be subjected to price negotiations, along with certain other categories of drugs.

From that list, HHS would select 10 drugs in the first year, increasing to 15 additional drugs in 2027 and 2028, when it adds Part B (physician-administered) drugs, then an additional 20 drugs by 2029 and beyond. Over time, the number of drugs with negotiated prices will increase. A few key milestones follow:

  • 1, 2023: HHS to publish the list of the first 10 drugs up for negotiation, based on a year’s worth of spending data that began in June of 2022
  • October 2023: Negotiations to begin on those 10 drugs
  • 1, 2024: Deadline for publishing the new, negotiated maximum fair prices
  • 1, 2026: New maximum fair prices on the first 10 drugs go into effect

Other Part D benefits

Starting in 2023, drugmakers would have to pay rebates if the average manufacturer price for a drug rises faster than inflation based on the difference between their price and the rate of inflation for all sales of that drug to Medicare. A Health and Human Services report said that if the requirement had been in place between July 2021 and July 2022, more than 1,200 prescription drugs could have been subject to the rebate. Prices on those drugs increased by a whopping 31.6% on average.

Beginning in 2023, the law caps insulin copayments at $35 a month for beneficiaries. It also eliminates cost sharing for adult vaccines covered by Part D, and expands eligibility for low-income subsidies starting in 2024.

Starting in 2025, Part D beneficiaries will see their out-of-pocket costs for prescription drugs capped at $2,000 a year, an amount that rises with the annual increase in per-capita expenditures for covered Part D drugs. The law will also cap the coinsurance rate under the out-of-pocket cap and reduce the coinsurance rate paid in the initial coverage phase to zero starting in 2024.

Effects on 340B

To calculate Medicare rebates, covered entities will have to exclude 340B claims from Part D starting in 2026; the government hasn’t said how, but it could involve a new claims modifier. And in a key difference from previous drug-pricing reform proposals, covered entities will be able to choose between 340B and negotiated Medicare pricing, whichever is lower.

Because Medicare will reduce the prices of certain drugs, the 340B discount on those drugs may also decrease because of how 340B pricing is calculated. What remains to be seen is whether the negotiated Medicare rates will be a benefit to hospitals. Our guess is that 340B will still be lower in most cases.

Another thing that an eagle-eyed colleague spotted is a provision requiring 340B entities to submit maximum fair price Part D acquisition costs and add a dispensing fee, like Medicaid.  Medicaid, as required by 340B law, must avoid duplicate discounts. It’s a change from how Medicare Part D reimbursement happens today, which is governed by the contract a covered entity or contract pharmacy has with a pharmacy benefit manager.

Like any other regulations, CMS will eventually develop draft regulations and follow a notice and comment period to solicit feedback. That’s when we may discover the devil in the details.

The law’s political prospects

Plenty of people have asked about the fate of the IRA in the next Congress starting in January. Whatever the result of the Dec. 6 runoff in Georgia, Democrats have retained control of the Senate, while the GOP will hold a narrow majority in the House, giving us a divided Congress.

As our 340B government relations friend Deb Outlaw recently noted, there have been echoes of Obamacare in calls from some Republicans to “repeal and replace” the Inflation Reduction Act. Drugmakers are already signaling concern with the legislation and its requirement that they start calculating pricing, so expect them to do plenty of meddling in the regulatory process.

But as we learned from the Affordable Care Act saga, it’s very difficult to repeal a law once it’s passed. And Republicans are scrambling to adjust expectations after failing to win back control of both chambers of Congress.

Still, a unified Republican House caucus can stymie legislation, so we expect some delays in implementing the law as opponents actively work against the established timelines. That could mean the negotiated lower drug prices won’t start by 2026. Much also rides on the outcome of the next presidential election in 2024, but that’s another story for another time.

If you’d like to continue the conversation with me, schedule a time that works for you and I’ll be in touch!

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