Pharmaceutical Manufacturers Should Take Note of Bipartisan Budget Act

The Act also contains several provisions that will have a direct impact on the pharmaceutical industry. Specifically, manufacturers should take note of the following:

• Extension of Medicare Part B Sequester. Section 101(c) of the Act will reduce federal spending by $14 billion in fiscal year 2025 by extending the 2% Medicare Part B sequestration cuts, including those on Part B-covered prescription drugs, for fiscal years 2023 and 2024. Sequestration reductions were originally scheduled to expire in 2021, but were first extended under the Bipartisan Budget Act of 2013, otherwise known as the Ryan-Murray spending agreement, and have now been further extended by the Act.
• Application of Medicaid Inflation Rebate to Generics. Currently, manufacturers of brand name single-source and innovator multiple-source drugs pay an additional rebate in connection with the Medicaid Drug Rebate Program if the price of those drugs increases faster than the rate of inflation based upon the consumer price index (CPI-U) compared to a statutorily prescribed base period. The inflation-based rebate had not previously applied to non-innovator multiple source generic drugs.
• Effective as of the first full rebate quarter one year after enactment of the Act (Q1 2017), Section 602 of the Act would apply the additional inflation-based rebate to non-innovator multiple source generic drugs in addition to single-source and innovator drugs. For drugs first marketed on or before April 1, 2013 under an Abbreviated New Drug Application (ANDA), the base period will be Q3 2014 using the baseline CPI-U from September 2014.
• As currently calculated for single source and innovator drugs, the additional rebate on non-innovator multiple source drugs will equal to the difference between the drug’s Average Manufacturer Price (AMP) for a given quarter, less the AMP in the base period adjusted for the percentage change in CPI-U from the baseline to the applicable quarter.  If the increase in a non-innovator multiple source drug’s price has been substantial enough, the imposition of the additional rebate could result in a drug’s Unit Rebate Amount being equal to its current quarter AMP, triggering “penny pricing” for the product under the 340B Drug Pricing Program.
• Prospective Site Neutral Payments. Under Section 603 of the Act, effective January 1, 2017, a “provider based” off-campus outpatient department (OPD) of a hospital will be reimbursed for services provided to Medicare patients under the Medicare Ambulatory Surgery Center (ASC) or Physician Fee Schedule (PFS), as applicable to the service provided, unless that location had been billing as a OPD prior to November 2, 2015. Previously, hospitals would have been reimbursed under the Hospital Outpatient Prospective Payment System (HOPPS) for such services, which typically results in higher reimbursement for the same service than does payment under the ASC or PFS.

Section 603 of the Act codifies the Centers for Medicare & Medicaid Services (CMS) definition of “campus” at 42 C.F.R. § 413.65 “as the physical area immediately adjacent to the provider’s main buildings and other areas and structures that are not strictly contiguous to the main buildings but are located within 250 yards of the main buildings.”  In prior years, the Medicare Payment Advisory Commission (MedPAC) recommended that Congress align Medicare payment rates for these settings to limit the incentive to shift cases to higher cost settings. Section 603 of the Act only applies prospectively to new provider-based off campus hospital outpatient arrangements/locations being certified on or after January 1, 2017.  We expect this issue to continue to receive attention from CMS (possibly in the form of additional rulemaking), and proponents and opponents of site-neutrality alike. Arent Fox attorneys will be closely monitoring this issue for our clients.