United States: Senate Finance Committee Releases Details Of Drug Pricing Bill

Last Updated: August 1 2019
Article by Hogan Lovells

Yesterday, the Senate Finance Committee Chairman Chuck Grassley (R-Iowa) and Ranking Member Ron Wyden (D-Oregon) released a description of The Prescription Drug Pricing Reduction Act of 2019, a bipartisan drug pricing bill that has been the subject of much anticipation. According to the accompanying press release, the bill is intended "to lower the price of prescription drugs for Americans." The next step in the legislative process is a hearing by the Senate Finance Committee scheduled for Thursday, July 25, at 9:30 am. Before becoming law, the bill would have to be passed by both the Senate and the House, before moving to the President for signature.

If enacted into law, the implications of the bill would be wide-ranging and would directly affect, among other stakeholders, drug manufacturers, insurers, and hospitals. Among other things, the bill would impose new transparency requirements on drug manufacturers, Medicare Part D plan sponsors, and pharmacy benefit managers (PBMs); impose new rules regarding manufacturer Medicaid drug rebates; re-structure the Medicare Part D benefit; set new caps on payment rates for Medicare Part B drugs, biologicals, and biosimilars; and eliminate grandfathering protection for certain provider-based hospital outpatient departments.

We have summarized key proposals below based on the information that is currently available, which does not include the text of the proposed legislation itself. The Senate Finance Committee has not released the text of the bill at this time but has posted a series of proposed amendments on the hearing website.


The Senate Finance Committee proposal would make a variety of changes to the Medicaid program and, in particular, the Medicaid Drug Rebate Program (MDRP).

First, the proposal would make a number of changes to state Medicaid pharmacy and therapeutics (P&T) committees and drug use review (DUR) boards:

  • Required P&T committees. Section 201 of the proposal would require state Medicaid programs that establish a drug formulary to create a P&T committee composed of "physicians, pharmacists, and other appropriate individuals appointed by the state governor" to "develop and review the Medicaid covered outpatient drug formularies." States would be required to implement a publicly accessible conflict of interest policy for P&T committees and to apply committee requirements "to formularies used by managed care organizations or other entities that dispense[] [covered outpatient drugs (CODs)] to Medicaid beneficiaries." A state DUR board may "serve as the P&T committee as long as [it meets] the enhanced P&T committee requirements."
  • Conflict of interest policies for DURs. Section 202 would require states to implement conflict of interest policies for DUR board members. DUR boards would further be required to submit an annual report to the state Medicaid program identifying DUR board members and any conflicts of interest. Managed care plans under contract to state Medicaid programs would have to comply with such conflict of interest reporting requirements.
  • Government Accountability Office (GAO) investigations and report. Section 203 would require the GAO "to investigate potential and existing state Medicaid program DUR board and P&T committee conflicts of interest," and the GAO "would be required to submit a report to Congress within 24 months of the enactment date" detailing its findings.

Second, the proposal would increase manufacturer Medicaid drug rebate liability:

  • Increase of maximum rebate amount by changing the rebate cap. According to the bill summary, Section 209 would "increas[e] the maximum allowable Medicaid rebate permissible in a rebate period from 100% of a covered outpatient drug's average manufacturer price (AMP) to 125% effective for rebate periods beginning October 1, 2022." The description is unclear, however, because it appears to also suggest that, beginning fiscal year (FY) 2022, the Medicaid rebate would not be subject to any cap where current AMP is greater than "base year AMP" adjusted for inflation using the Consumer Price Index for All Urban Consumers (CPI-U). Instead of being subject to the cap, the manufacturer would "be subject to all rebate obligations that would otherwise be due if there was no cap on rebate obligations."
  • State Medicaid program option to invoice rebates for CODs paid for as part of a bundled payment. In a departure from the current COD limiting definition, Section 210 proposes that, "at the option of a state, . . . the term 'covered outpatient drug' may include any drug, biological product, or insulin as part of a bundled payment if it is provided on an outpatient basis as part of, or as incident to and in the same setting as, physicians' services or outpatient hospital services."

Third, the proposal would make changes to MDRP program integrity and civil monetary penalty (CMP) requirements:

  • Required Health and Human Services (HHS) audits of manufacturers under the MDRP and related CMPs. Section 204 would "require the HHS Secretary to audit the price and drug product information reported by COD manufacturers to ensure accuracy and timeliness." HHS would further be able to "survey wholesalers and manufacturers, including direct seller manufacturers, when necessary, to verify manufacturer prices, including [wholesale acquisition cost (WAC)] and AMP." In addition to other CMPs, HHS "would be authorized to impose [CMPs] up to $185,000 on wholesalers, manufacturers, or direct sellers of CODs if those entities refused to provide information about audit or surveyed charges or prices or knowingly provide[d] false information."
  • Increased CMPs. Section 204 also would increase CMPs for a manufacturer's failure to provide timely information under Social Security Act (SSA) Section 1927(b)(3)(C)(i) from $10,000 per day to $50,000 for the first day information is not timely reported and $19,000 for each subsequent day, per drug. The maximum CMP for knowingly reporting false information at SSA Section 1927(b)(3)(C)(ii) would increase from $100,000 to $500,000. (The CMP amounts currently set forth in the statute are subject to increases based on inflation and so in practice are greater than $10,000 and $100,000.)

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