September 22, 2021

Inflation Penalties in the Government and Commercial Markets

How it Could Work

In this survey, experts were asked to evaluate the new inflation penalty language included in the House Committee on Energy and Commerce Markup. This version of the inflation penalty assesses the penalty on sales in the commercial market as well as in the Medicare program. Experts were specifically asked to compare the new proposal to current law and not to compare to the prior inflation penalty proposals in H.R. 3 and the Prescription Drug Pricing Reduction Act of 2019, which were limited to sales in the Medicare program. To see how our experts think previous inflation penalty proposals would work, click here.

The inflation penalty in the Markup is separated into two sections, one targeting Part B drugs (which are administered by providers) and one targeting Part D drugs (which are administered by the patient). For Part B drugs that have price hikes greater than the rate of inflation, the manufacturer must pay a rebate equal to the total number of units as detailed in the Average Sales Price (ASP) calculation with respect to that drug throughout the calendar year (Sec. 30511). Part B drugs dispensed under Medicaid are excluded from the calculation.

For Part D drugs, manufacturers must pay a rebate for the amount by which changes in the Average Manufacturer Price (AMP) exceeds inflation, multiplied by the total sales units included in AMP (Sec. 1860D-14B). Part D drugs dispensed under Medicaid are excluded from the calculation.

What Experts Think

The CIDSA experts agreed that this bill would reduce drug spending, however they were split on how significant the savings would be. The experts unanimously agreed that this policy would moderately decrease both drug list and net prices. While most patient groups would see a moderate increase in drug access, Medicaid and rare disease patients would not be affected by this policy change.

The experts were divided on how significant this bill would be in the evolution of drug spending policies, six experts felt that it would significantly advance drug policy, but the other two felt it would only moderately advance drug spending policy. The experts indicated many strengths of this policy, including its ability to be implemented, the size of the affected population, the precedent setting value, and the magnitude of its impact on drug spending. Conversely, the experts noted that the evidence base in support of this policy remains unknown.

Only 8 CIDSA experts were able to complete this survey.

How likely would this policy be to reduce drug spending?
Would Increase Drug Spending
Would Not Affect Drug Spending
Would Minimally Reduce Drug Spending
Would Moderately Reduce Drug Spending
Would Significantly Reduce Drug Spending
Would Substantially Reduce Drug Spending
How likely would this policy be to reduce drug prices?
Would Significantly Increase Drug Prices
Would Moderately Increase Drug Prices
Would Not Affect Drug Prices
Would Moderately Decrease Drug Prices
Would Significantly Decrease Drug Prices
List Prices
Net Prices
How likely would this policy be to increase patient drug access?
Would Significantly Reduce Drug Access
Would Moderately Reduce Drug Access
Would Not Affect Drug Access
Would Moderately Increase Drug Access
Would Significantly Increase Drug Access
Rare Disease
Large Patient Groups
How significant is this policy in the evolution of US drug spending policy?
Does Not Advance Drug Spending Policy
Minimally Advances Drug Spending Policy
Moderately Advances Drug Spending Policy
Significantly Advances Drug Spending Policy
Ground-Breaking Shift in Drug Spending Policy
What are strengths and weakness of this policy?
Size of Affected Population
Evidence Base in Support of Policy
Precedent-Setting Value
Magnitude of Drug Spending Impact
How important are the following in your analysis of the policy's impact?
Not Important
A Little Important
Somewhat Important
Very Important
Manufacturers ability to increase launch prices moving forward
Implications on drug innovation are unclear
The use of AMP and ASP excludes many Medicare and commercial units
Manufacturers' manipulation of AMP and ASP calculations
Possible greater incentive for brown-bagging
Some HCPCS codes and ASP prices do not differentiate between manufacturers of the same multi-source drugs, unclear how the policy will deal with this scenario if one manufacturer increases the price but the others do not

Considerations for Policymakers

Experts highlighted various concerns for policymakers to consider before moving ahead with this policy. The most important of which are the manufacturers’ ability to increase launch prices in the future and that the use of AMP and ASP may exclude some Medicare and commercial units. Other key considerations are how manufacturers may manipulate their AMP and ASP calculations and that there is no system in place for the HCPCS codes and ASP prices that do not differentiate between manufacturers. For the few multi-source drugs that have that same HCPCS codes and ASP prices across manufacturers, it is unclear how this bill would fault one manufacturer who increases the price without penalizing the others that do not. Additional considerations for policymakers include the uncertainty that this bill could impact future innovation and that it may create greater incentives for brown-bagging.