October 18, 2021

Volume XI, Number 291

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October 18, 2021

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The Infrastructure Investment and Jobs Act: Potential Impact on Healthcare Policy and Spending

On August 10, 2021, the Senate passed H.R. 3684, a roughly $1 trillion infrastructure bill (the “Infrastructure Bill”) that authorizes funds for federal-aid highways, transit, broadband access and other infrastructure purposes.  Notably, the Infrastructure Bill is paid for in part through changes to several healthcare policies, including delaying a Medicare Part D rebate rule for an additional three years and reducing Medicare payment amounts to providers.  The Infrastructure Bill’s changes to healthcare policies provide a mixed impact to health care industry stakeholders, with both expected benefits and burdens to providers, payers, and drug manufacturers.

Restarting Medicare Payment Cuts

The Infrastructure Bill restores a two percent cut to all Medicare payments to providers to help fund infrastructure spending.  This cut was originally installed in 2013 under sequestration, but Congress paused it at the onset of the pandemic in 2020 to assist financially distressed providers. Congress then extended the moratorium through 2021.  Under the Infrastructure Bill, the cut to Medicare payments to providers will restart in 2022 and run through 2031.  As scored by the Congressional Budget Office (“CBO”) in its Infrastructure Bill Report (“CBO Report”), the Medicare cuts would result in approximately $21 billion in savings over the ten-year period (2022 through 2031).

Major provider advocacy groups have expressed concern that this cut to the Medicare program will be unsustainable for providers, especially given the resurgence of COVID-19 cases due to the Delta variant.  The American Hospital Association and American Medical Association, among other groups, wrote a letter to congressional leaders on July 15, 2021, prior to the Senate’s vote, to warn that “[e]xtending sequestration imposes a destabilizing element to health care access in the face of years of experience with cost increases that are not adequately accounted for in Medicare payments.”[1]

Delaying Part D Rebate

The Infrastructure Bill also delays a controversial Medicare Part D rebate rule (the “Part D Rebate Rule”) until 2026.  This Trump-era regulation, originally set to go into effect in 2022, eliminates the safe harbor for Part D rebates and replaces it with a far narrower safe harbor for point-of-sale discounts which are designed to directly benefit patients with high out-of-pocket costs.  The Part D Rebate Rule also changes the way pharmacy benefit managers (“PBMs”) are compensated.  However, in January 2021, the Biden administration successfully sought to delay Part D Rebate Rule from taking effect until 2023 via a court order.  The Infrastructure Bill will now delay it for an additional three years.  As scored by the CBO and reported in the CBO Report, the delay would result in $52 billion in savings over the three year period.

The Infrastructure Bill’s delay of Part D Rebate Rule is celebrated as a win for PBMs and insurers, while the delay is opposed by the pharmaceutical industry.  Former Department of Health and Human Services Secretary Alex Azar previously stated the Part D Rebate Rule would benefit drug manufacturers by eliminating a “kickback” that drug manufacturers have to pay to get on the Part D formulary for PBMs and insurers.  However, PBMs and insurers previously argued that the Part D Rebate Rule would raise Part D premiums for seniors.[2]

Regulating PPE Purchases

In addition, the Infrastructure Bill requires the federal government to purchase personal protective equipment (“PPE”) exclusively from domestic manufacturers, with contracts that run for at least two years.  The legislation seeks to support domestic production of PPE to ensure more stable access given the accelerated demand and the overburdened oversea supply chain.  The two-year requirement also aims to acknowledge the economic uncertainty that domestic producers face.[3]

Requiring Drug Manufacturers to Refund Medicare for Discarded Drugs

Finally, the Infrastructure Bill requires drug manufacturers to refund Medicare for any single-dose or single-use package drugs dispensed under Medicare Part B (which reimburses for physician services including physician-administered drugs).  Beginning in 2023, these refunds must be made each quarter.  This requirement aims to deter drug manufacturers from overpacking single-use containers and hopes to decrease drug waste.  It could force some big pharmaceutical companies to repay the federal government roughly $100 million annually based on the current rate and volume at which medicine is discarded by doctors due to overpacking.  In turn, this repayment would contribute to funding the Infrastructure Bill’s projects. According to the CBO Report, the refund provision would result in approximately $3.2 billion in Medicare program savings.

The Rest of the Story:  the Infrastructure Bill in the House of Representatives

Although the Infrastructure Bill passed by the Senate has broad bipartisan support, politics in the House of Representatives have somewhat stalled its final passage.  At the core of the controversy is a $3.5 trillion reconciliation package being crafted by the Senate, supported by Speaker Pelosi and the Biden Administration, which is expected to include major healthcare priorities such as expanding hearing, dental and vision benefits to Medicare and giving the program the power to negotiate lower drug prices.  A small but critical number of moderate Democrats in the House are insisting upon a vote on the Infrastructure Bill as drafted prior to advancing the $3.5 trillion reconciliation package, while Speaker Pelosi and the Biden Administration are advocating a vote on the reconciliation package first. 

Emma Arroyo, a law clerk in the firm’s Orange County office, contributed to this article.

FOOTNOTES

[1] Robert King, Senate passes infrastructure bill that restarts sequester cuts, delays rebate rule, FIERCE HEALTHCARE (Aug. 10, 2021); Robert King, 3 key health policies in the Senate’s $1T infrastructure package, FIERCE HEALTHCARE (Aug. 2, 2021).

[2] Analysts at the CBO, Centers for Medicare and Medicaid Services (CMS) and Avalere Health found that the rule would cause Part D premiums to increase between 25 and 40 percent. (Center For Medicare & Medicaid Services Office Of The Actuary, Memo On Proposed Safe Harbor Regulation; Congressional Budget Office, Incorporating The Effects Of The Proposed Rule On Safe Harbors For Pharmaceutical Rebates In CBO’s Budget Projections; Avalere Health, Costs for Taxpayers Could Skyrocket Under Proposed Rebate Rule)

[3] Id.

Copyright © 2021, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume XI, Number 236
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About this Author

Kenneth Yood Healthcare Attorney SheppardMullin
Partner

Ken is a partner in the Corporate practice group in the firm's Los Angeles office. Chambers USAranks him highly for Healthcare, where he was commended for his "broad-based ability in the regulatory area." Clients appreciate that "his explanations are clear, and he understands the business side of things," notes Chambers 2016.

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Ken represents a wide range of healthcare providers and healthcare companies, including specialty and general acute hospitals (including local district, nonprofit and...

310-228-3708
Melissa Gertler, Sheppard Mullin Law Firm, Corporate Law Attorney, Century City
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Melissa Gertler is an associate in the Corporate Practice Group in the firm's Century City office.

424-288-5314
Ariana Stobaugh Corporate Attorney Sheppard Mullin Law Firm Century City
Associate

Ariana Stobaugh is an associate in the Corporate Practice Group in the firm's Century City office and is a member of the firm’s Healthcare team.

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Ariana advises healthcare organizations on business, regulatory and transactional matters.

Prior to joining Sheppard Mullin, she worked as a high school English teacher in Los Angeles.  While attending law school at USC Gould School of Law, she served as an extern at Public Counsel and Neighborhood Legal Services....

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