Impact of Build Back Better on Global Branded Pharma
There are two key proposals: (1) negotiation by HHS for a limited number of drugs, potentially a negative for pharma, and (2) redesigning Part D payments. This redesign is likely an overall net-neutral.
Lower-cost drugs funded under Medicare Part D could see some benefit whilst more expensive drugs (over c.$25,000/year) could see higher manufacturer contributions to patient costs. Lower out-of-pocket spending for Medicare beneficiaries could also lead to higher volumes for some drugs.
Direct negotiation of Medicare drug prices from 2025 could, in our view, effectively impose price cuts on a limited number of large Medicare drugs, which are competition-free for nine years (small molecules) and 13 years (biologics) post-launch. In our view, this program looks to fit a generic erosion to these drugs before patent expiry and could be seen as precedent-setting ('the thin end of the wedge') for direct government involvement in Medicare pricing.
In this analysis, we looked at the possible impact on consensus 2025 earnings for both the top 15 drugs in Medicare, and also more broadly assuming commercial plans achieve some price cuts too.
Changes in the funding of Part D (the program that covers outpatient drugs for seniors) reduce the US government subsidy in catastrophic coverage, increase the PBM/plan contribution and change the mix of manufacturers' contributions.
Although we calculate no net change in manufacturers' overall contribution, we see companies with drugs with lower list prices as advantaged and those with higher as disadvantaged. Higher plan contributions would be expected to result in higher Medicare premiums for beneficiaries, which may result in change rather than eliminating US government subsidies. The prospect of higher premiums has historically killed other reform proposals.
The CBO has released the headline scoring of the BBB bill, at a level of granularity that has allowed Democrats to move quickly to a debate and possible vote. The next stage would be the Senate, where there could be revisions.