Build Back Better Act and 340B Impact

By Rob Nahoopii

If you are like me, it feels like I have been on a roller coaster ride as I watch what is and what is not going to be included in the Social Reform Bill titled “Build Back Better Act” (BBBA) or H.R. 5376. I have also been having a hard time tracking which provisions are part of the Build Back Better Act ($1.75 trillion) or the Infrastructure Investment and Jobs Act ($1.2 trillion). Wasn’t it just one bill, why do we have 2 bills, is it so the price tag for each is under $2 trillion, how do you even abbreviate trillion, is it just a T? My apologies, that is what runs through my brain nearly every time I think about these Acts. By the way, the website says you can abbreviate trillion as T or tn, who knew! Back to the topic of this article though, the BBBA’s latest version that is being voted on the week of November 15th has included some drug pricing language, albeit paired down from previous versions that were removed. This language is not specific to 340B of course but could have an effect on 340B pricing as a side effect. Bear with me, we’ll get there by the end of this article.

To understand how 340B can be affected, we must first understand how the drug pricing component would work. The BBBA was released on November 3rd and amended on November 4th, and is 2135 pages long, with drug pricing starting on page 1977. Here is a summary of the drug pricing section in the BBBA.

The Secretary is to establish a Drug Price Negotiation Program.
Price negotiation to begin in 2023, with a start date of 2025.
The initial selection is no more than 10 drugs for 2025, 15 for 2026, 20 for 2028.
Drugs are selected based on Medicare expenditure for the previous 12 months for both Part B and D (some clarification is needed on Part B being included in initial selection).
The list will include the top 50 single source drugs that have been on the market for at least 7 years, biologics are 10 years, and any insulin. There are some exclusions as well (e.g., certain orphan drugs, low spend drugs).
Pricing (i.e., maximum fair price) is based on non-Federal average manufacturer price (AMP). The BBBA uses 3 categories for price calculation: Short Monopoly Drugs are 75% of Non-Fed AMP, Post-Exclusivity Drugs are 65%, and Long-Monopoly Drugs are 40%. Post-Exclusivity drugs are defined as at least 12 years but fewer than 16 years have passed since drug approval. Long-Monopoly Drugs are defined as 16 years have lapsed since drug approval. Oddly enough, the BBBA does not define Short Monopoly Drugs, but since I think linearly the default seems to be for drugs where fewer than 12 years have elapsed since approval (of course they would have to be past 7 years of approval unless it is insulin as noted above).
Page 2033 also starts Part-2 Prescription Drug Inflation Rebates. This is similar to the 340B penny pricing penalty. This is set to start July 1, 2023, and is a rebate based on pricing inflation exceeding the consumer price index urban (CPI-U) rate.
I should add that there are also other pharmacy-related items such as maximum copays for insulin capped at $35, and this is not just for Medicare (starting in 2023). There is also a maximum out-of-pocket limit on prescription drugs that will cap at $2,000 for Medicare beneficiaries. Both of these are great for patients.

Okay, back to 340B. There is literally only one mention of 340B in the whole BBBA, and it is around Duplicate Discount clarification and the Children’s Health Insurance Program (CHIP). It appears to just be stating that there will not be a duplication of rebates. So, the real potential impact comes with the drug price negotiation and inflation rebates. However, since exemptions for 340B (yes, that was on the table at one point) are not in the language, the impact is really based on the 340B pricing calculation and drug pricing.

As a reminder, the 340B ceiling price is AMP minus the unit rebate amount (URA). The URA is calculated by CMS for the Medicaid Drug Program and includes a percent of AMP or AMP minus best price with an inflation adjustment, whichever is greater. This latter calculation is what drives drugs to a penny per unit if the manufacturer raises the AMP faster than inflation (also CPI-U) as the URA can be equal or more than AMP, which triggers the penny per unit 340B ceiling price (since a negative value would cause the manufacturer to have to pay a 340B CE to obtain the drug, which does not make sense).

So, as best as I can see it, as the inflation rebates start, manufacturers could change their pricing to lessen the impact. As they change their pricing strategy, the same calculations that affect BBBA components will affect the 340B ceiling price. For instance, the inflation rebate may be such a disadvantage that a manufacturer may choose to not exceed the CPI-U rate of increase, which would also result in not being subjected to 340B penny pricing. For patients with Medicare and being treated with drugs on the maximum fair pricing list, there will likely be a decrease in reimbursement that could blunt the 340B savings as the actual Medicare maximum fair price for the drug would lower the drug price delta with 340B pricing. What I didn’t see is how they intend to roll this out. Will it be a rebate, or something akin to 340B, where you have a different account type with the maximum fare prices in it? Since this does not roll out until 2025, I am sure we will receive lots of information on how it will be operationalized. I know this was a lot, please feel free to reach out to me with any questions you have, and or comments.