Introduction
Recently, Stat+ reported that a group of prominent venture capitalists (VCs) issued a strong warning to Congress. The warning: H.R. 3, the newly introduced Lower Drug Costs Now Act, if enacted, will "severely constrain" the VC's ability to invest in future biomedical innovation, "thus crushing the hopes of millions of patients waiting for the next breakthroughs."
An alternative view of H.R. 3 is presented by Speaker Nancy Pelosi's website. The Speaker describes that H.R. 3 gives Medicare "the power to negotiate directly with drug companies, and creates strong new tools to force drug companies to the table to agree to real price reductions …" and "[s]tops drug companies from ripping off Americans while charging other countries less for the same drugs." In this alert, we highlight relevant provisions of H.R. 3.
Lowest Maximum Fair Price
H.R. 3 introduces a new statutory scheme for pricing for new drugs that lack competition in the U.S. market. H.R. 3 envisions a capped drug price that is negotiated between the government and a drug manufacturer. Under H.R. 3, the government and drug manufacturers would have a fixed period of time to negotiate a lowest "maximum fair price" (MFP), for at minimum, 25 of the most expensive 250 drugs in a given year. Insulin is additionally included. The MFP would be capped at 1.2 times (or 120 percent) of the volume-weighted average of the price of six countries (Australia, Canada, France, Germany, Japan, and the United Kingdom)—the Average International Market (AIM) price; and the government would attempt to negotiate drug prices at or below the cap. New drugs not yet available overseas would require a 15 percent launch price discount.
As part of the negotiations, confidential manufacturer information would be disclosed to certain government officials, and would be used by the government to aid the government in its negotiations and in helping the government to determine its proposed MFP. Once the government and a drug maker agreed upon an MFP, the MFP (and others) would be published by the government in the Federal Register. Renegotiations of MFPs may be requested based on new information, and MFPs would be made available to all insured Americans, including Americans on Medicare.
Steep Penalties for Failing to Negotiate an MFP
If a drug manufacturer refuses to negotiate an MFP with the government, or breaks off negotiations before agreeing to an MFP, the manufacturer would be subject to an escalating tax based on the drug's annual gross sales—starting at 65 percent and increasing every quarter of non-compliance, up to a maximum of 95 percent. This escalating tax is designed to bring drug makers to the negotiating table.
Medicare Part B and D "Above Inflation" Rebates to the Government (Retroactive)
The more than 8,000 drugs in Medicare Part B and D would face potential new inflation rebates. Retroactively to 2016, if a drug company raised the price of a Medicare Part B or D drug above the rate of inflation, based on the consumer price index for all urban consumers, the manufacturer would be required to lower the drug's price—or pay back the entire price increase above inflation to the U.S. Treasury. Failing to timely pay the rebate to the Treasury would result in a civil money penalty. Some of this rebate money could be used to provide additional funds to the National Institutes of Health (NIH).
Cap for Medicare Part D Drug Costs
H.R. 3 sets a cap on the costs Medicare Part D beneficiaries at an annual out-of-pocket limit of $2,000.
Conclusion
H.R. 3, if enacted as drafted, would reshape the new drug pricing in the U.S. Interested parties—including venture capitalists, drug makers, start-ups, employers, employees, insurance companies, pharmacy benefit managers, pharmacies, and patients, should considering discussing H.R. 3 with their elected representatives at the state and federal levels. For questions regarding H.R. 3, please contact Vern Norviel, David Hoffmeister, or any member of Wilson Sonsini's Patents and Innovation Strategies or FDA Regulatory, Healthcare, and Consumer Products practice groups.
Charles Andres contributed to the preparation of this Wilson Sonsini alert.
