Major Healthcare and Prescription Drug Reform Bill Signed into Law

On Tuesday, August 16, President Joe Biden signed the $740 billion Inflation Reduction Act of 2022 into law, delivering on several key aspects of his “Build Back Better” social and environmental agenda. Notably, the legislation includes some significant prescription drug reform and healthcare affordability provisions that are set to take effect over the next six years.

The sweeping budget reconciliation package was originally introduced as the Build Back Better Act and passed by the House of Representatives in November 2021. Senate negotiations on a counterpart to the House-passed legislation fizzled out in December, when moderate Democratic Senator Joe Manchin (D-WV) balked at the $2.2 trillion price tag. Still, the Senate Finance Committee continued working on the prescription drug pricing reform elements of the legislation in spring 2022, while Manchin suggested in private meetings with the White House that he would support a slimmed-down version of the Build Back Better Act that addressed “only climate change, prescription drug prices, deficit reduction, and an updated tax code.” 

These negotiations took a backburner (at least publicly) as Congress focused on passing other bipartisan pieces of legislation through much of its 2022 session. As the summer wore on, passage of a broad Democrat-only package seemed more and more unlikely in a 50-50 Senate. However, in a move that took many on Capitol Hill by surprise, Manchin and Senate Majority Leader Chuck Schumer (D-NY) jointly announced they had reached a deal on a budget reconciliation bill on July 27, 2022. The Inflation Reduction Act was passed by a 51-50 vote in the Senate on August 7, and a 220-207 vote in the House on August 12. 

First, on the side of health insurance affordability, the Inflation Reduction Act extends the enhanced Affordable Care Act (ACA) premium tax credits for three years (through the end of 2025). The subsidies for purchasing ACA Marketplace health plans were originally expanded beyond 400 percent of the federal poverty level by the American Rescue Plan Act of 2021 but were set to expire at the end of this year. The White House estimates that the passage of the Inflation Reduction Act will allow three million Americans to maintain health insurance in 2023 and that these Americans will save on average $800 per year on their health insurance premiums. The passage of this law was especially timely, as a July analysis by the Kaiser Family Foundation found that premiums for Marketplace plans are expected to rise by 10 percent in 2023, so the subsidies will help shield most Americans from these significant price increases.

Another set of provisions of the law are meant to address increasing out-of-pocket drug costs by redesigning Medicare Part D—the Medicare prescription drug benefit. The law will eliminate the current five percent coinsurance requirement above the catastrophic threshold in 2024 and implement a $2,000 cap on out-of-pocket drug spending in 2025, with the ability to spread one’s annual out-of-pocket amount into monthly payments. This means that once a Medicare beneficiary has reached their $2,000 annual spending cap, they would have no further financial obligation for the cost of their covered prescriptions. This is seen as a major win for patients with cancer, as the high out-of-pocket costs of prescription drugs is often a barrier to medication adherence and the completion of their anti-cancer treatment. 

The final healthcare piece of the Inflation Reduction Act is a set of provisions that will allow the Department of Health and Human Services (HHS) to negotiate the prices of prescription drugs covered by Medicare Parts B and D for the first time. Beginning in 2026, the drugs eligible for negotiation will include brand-name drugs or biologics without generic or biosimilar equivalents that are nine years or more (small-molecule drugs) or 13 years or more (biologics) from their U.S. Food & Drug Administration approval. For a negotiation-eligible drug, a “maximum fair price” would be negotiated between the Medicare program and drug manufacturers, impacting both patient cost-sharing and provider reimbursement. The federal government can impose a financial penalty in the form of an excise tax on drug manufacturers that do not negotiate with HHS. The law also institutes a provision requiring drug manufacturers to pay a rebate if their drug prices increase faster than the rate of inflation. These inflation caps are expected to help reduce prescription drug price growth over time. 

Below is a timeline summarizing the prescription drug reforms to be implemented by the Inflation Reduction Act:

• In 2023: Drug companies will be required to provide rebates if their drug prices increase faster than the rate of inflation. The cost sharing for adult vaccines covered under Part D will be eliminated. 
• In 2024: The five percent coinsurance requirement above the Part D catastrophic threshold will be eliminated. Income eligibility will expand for Part D Low-Income Subsidy full benefits up to 150 percent of the federal poverty level.
• In 2025: Part D out-of-pocket spending will be capped at $2,000 annually, and other Part D benefit changes will be implemented. 
• In 2026: HHS will be required to negotiate the prices of 10 Part D drugs. 
• In 2027: HHS will be required to negotiate the prices of 15 Part D drugs. (The implementation of the Trump administration Rebate Rule will be delayed to 2032.)
• In 2028: Price negotiations will expand to include 15 Part D and Part B drugs.
• In 2029: Price negotiations will expand to include 20 Part B and Part D drugs.

Of all the reforms included in the law, ACCC has been most concerned about the impact of drug price negotiations on Medicare Part B reimbursement. Specifically, significant cuts to provider reimbursement for high-cost drugs administered in the clinical setting may have the unintended consequence of reducing Medicare beneficiaries’ access to crucial medications and treatments. Over the past year, ACCC has communicated this concern to congressional leadership in the form of letters and formal testimony for the record, and it has had the opportunity to engage with Senate Finance Committee members on potential solutions that would be harmless to providers. 

Ultimately, the gradual implementation of the Part D redesign and prescription drug pricing negotiation provisions of the law over the next six years leaves the potential for future legislative delays or alterations to this reform at the federal level. Advocacy efforts will remain important during this time, as ACCC continues to educate members of Congress about the downstream impacts of drug pricing negotiations and prioritize the provision of high quality and equitable cancer care for all.

Matt Devino, MPH, is the director of Cancer Care Delivery and Health Policy at ACCC.