Drug Price Bill Introduced

July 25, 2019

The Senate Finance Committee has finally unveiled its long-awaited legislation on drug prices, and the bill includes a slew of changes across Medicare and Medicaid.

Senate Finance Committee Chairman Chuck Grassley (R-Iowa) and Ranking Member Ron Wyden (D-Ore.) recently introduced a chairman’s mark, the Prescription Drug Pricing Reduction Act (PDPRA) of 2019, the latest attempt to reduce prescription drug prices by Congress.


The proposed legislation would attempt to modernize and improve the Medicare Part D program by simplifying the design of the program; add an out-of-pocket spending cap; improve incentives to increase negotiations between prescription drug plans and manufacturers; among other ideas.

Current law requires that manufacturers who participate in the Medicaid program to report to the Secretary of Health and Human Services (HHS) certain calendar quarter drug pricing information, including the average sales price (ASP), the number of units sold, and sometimes, the wholesale acquisition cost (WAC). Medicare then pays providers for most Part B drugs, biologicals, and biosimilars based on the ASP. The proposed law would require manufacturers who do not have a Medicaid drug rebate program to also report ASP information to the HHS Secretary to be used in establishing Medicare payment rates.

The proposal would also require manufacturers to refund the amount of payment made to providers for unused amounts of certain single-use vials that exceed a minimum threshold on a quarterly basis, as identified by the “JW” modifier on the claim form.

The proposed legislation would establish a statutory definition of “bona fide service fees,” specifically narrowing the existing definition to explicitly prohibit: fees based on the percentage of sales and fees determined in a manner that takes into account the volume or value of any referrals or business otherwise generated between the parties. The definition would expand the fees that manufacturers pay to wholesalers and group purchasing organizations that must be treated as a price concession and included in the reported ASP.

The proposed legislation would establish $1,000 as the maximum add-on amount (in addition to the ASP) that a provider can be paid for a drug, biological, or biosimilar, administered beginning January 1, 2021. The provider billing for the drug would be paid the lesser of the add-on amount that would otherwise be paid—6 percent of the ASP for a drug or biological, 6 percent of the ASP for the reference product for a biosimilar, 3 percent of WAC for a new drug in the initial period— and $1,000 through December 31, 2028. For 2029 and each subsequent year, the $1,000 maximum add-on amount would be updated by CPI-U.


The legislation would also attempt to improve the Medicaid program by increasing transparency and making manufacturers more accountable to federal taxpayers; allowing Medicaid to pay for gene therapies for rare diseases through risk-sharing value-based agreements; and applying pressure on manufacturers to lower the list prices and more accurately report their rebate obligations.

The proposal would also require the Government Accountability Office (GAO) to investigate potential conflicts of interest on state Medicaid Drug Use Review (DUR) board and Pharmacy & Therapeutics (P&T) committees. The GAO would then be responsible for submitting a report to Congress within two years of the enactment date, covering a range of topics.

The proposed legislation would also require the HHS Secretary to audit price and drug product information reported by covered outpatient drug (COD) manufacturers to ensure accuracy and timeliness via evaluation surveys, statistical sampling, predictive analytics, among other tools and methods.

The proposal would amend SSA Section 1927(k)(1) to exclude authorized generic drugs from the calculation of AMP under the Medicaid drug rebate program, and for other purposes. This would also amend the statutory definition of wholesaler to exclude COD manufacturers.

CBO Score

According to the Congressional Budget Office (CBO), by redesigning the Medicare Part D and inflation-rebate policies, Medicare would save roughly $85 billion from 2019 through 2029. The two changes in policy would also reduce beneficiaries’ out-of-pocket costs by roughly $27 billion over that same time period and reduce beneficiaries’ spending on premiums by roughly $5 billion from 2019 through 2029.

The Senate Finance Committee will be holding an open executive session to markup the legislation on July 25 at 9:30 a.m.