The Senate Finance Committee has released an updated draft of drug pricing provisions in the reconciliation package, introducing significant changes to Medicare's drug negotiation policy. The revised text, released on July 6, removes insulin products from automatic government negotiation and delays implementation by one year, reshaping which medications will be eligible for price negotiations.
The changes mark a departure from the House-passed Build Back Better Act (BBBA), which would have automatically subjected all insulin products to government negotiation without counting them toward annual negotiation limits. Under the new Senate draft, insulin products could still be selected for negotiation, but only if they rank among top-spending drugs in Medicare Parts B and D while meeting other eligibility criteria.
Revised Negotiation Timeline and Drug Selection
The updated Senate Finance Committee language establishes a clear schedule for drug selection:
- 2026: 10 drugs based on Part D spending (Part D drugs only)
- 2027: 15 drugs based on Part D spending (Part D drugs only)
- 2028: 15 drugs based on combined Part D and Part B spending (first year including Part B drugs)
- 2029 and beyond: 20 drugs based on combined Part D and Part B spending
Implementation has been delayed by one year compared to the House version, with the first negotiation process now set to begin September 1, 2023, for the initial 2026 price applicability year.
"The changes to the negotiation policy will significantly impact pharmaceutical pricing strategies and patient access," said an Avalere spokesperson. "Stakeholders need to understand how these revisions will affect competitive market dynamics."
Biosimilar Provision Adds Flexibility
The draft includes a new provision allowing the Secretary of Health and Human Services to delay inclusion of certain biologics on the negotiation list for up to two years if a biosimilar manufacturer demonstrates a "high likelihood" that their product will reach market before negotiated prices take effect. This provision does not apply to biologics approved 16 or more years ago.
If the biosimilar fails to reach market during the two-year period, the original biologic manufacturer would pay a rebate equal to the maximum fair price (MFP) amount, and the drug would be included in the next applicable negotiation period.
Economic Impact Analysis
Avalere's analysis of the revised policy estimates that 100 drugs would be subject to Medicare negotiation during 2026-2031. These medications span multiple therapeutic areas including oncology, autoimmune, pulmonary, diabetes, anti-infectives, and cardiovascular conditions.
For 2026, the first applicable price year, Avalere projects that the 10 high-spending Part D drugs likely to be negotiated represent approximately $34.5 billion in total Medicare Part D spending—more than 17% of annual Part D expenditures based on 2020 data.
By 2028, when Part B drugs become eligible, Avalere estimates that 7 of the 15 drugs selected for negotiation will have Part B spending, accounting for $11.9 billion (31%) of Part B drug expenditures.
"In total, the Part B and D drugs that could be selected for negotiation from 2026-2031 represent 45% ($106 billion) of all Medicare Part B and Part D drug spending in 2020," noted the Avalere report.
Eligibility Criteria Remain Largely Unchanged
While the automatic inclusion of insulins has been removed, other eligibility criteria remain consistent with previous versions. Drugs eligible for negotiation must be:
- Single-source products
- Available for at least 7 years for small molecule drugs or 11 years for biologics (measured from FDA approval to selected drug publication date)
- Among top-spending medications in Medicare Parts B and D
Certain exclusions apply, including orphan drugs, plasma-derived products, and drugs representing less than $200 million in Medicare Part B and D spending. A temporary exclusion for "small biotech drugs" applies through 2028.
Industry Implications
The pharmaceutical industry is closely monitoring these changes, which will reshape pricing strategies and market dynamics. The Pharmaceutical Research and Manufacturers of America (PhRMA) funded Avalere's research, though Avalere maintained editorial control over the analysis.
Healthcare providers and patient advocacy groups have expressed mixed reactions, with some concerned about potential impacts on drug innovation and others hopeful that negotiations will improve affordability for Medicare beneficiaries.
As implementation approaches, stakeholders across the healthcare ecosystem will need to adapt to this significant shift in how Medicare approaches drug pricing for some of its most expensive medications.
