California

The Congressional Budget Office projects that the inflation-rebate and
negotiation provisions would increase the launch prices for drugs that are
not yet on the market relative to what such prices would be otherwise. That
effect would primarily be driven by the inflation-rebate provisions (sections
129101 and 129102), which would begin to apply to prices within 12
months of a given drug’s entering the market. Under those provisions,
manufacturers would have an incentive to launch new drugs at a higher
price to offset slower growth in prices over time. The negotiation provision
(section 129001) would have less of an impact on launch prices, CBO
expects: Although the ceiling for a drug’s negotiated price is based on its
price from a prior year, negotiation could not occur until drugs were on the
market for a number of years—at least 7 for small-molecule drugs and 11
for biologics.

Higher launch prices would primarily affect spending for drugs in the
Medicaid program, CBO projects, because an increase in that program’s
basic rebate brought about by the higher launch prices would only partly
offset those prices.4 Higher launch prices would also tend to affect
spending for drugs covered by Part B of the Medicare program because that
program’s payments for those drugs are based on the average sales prices.
Over time, slower price growth would attenuate the effect of higher launch
prices.

In the commercial and Medicare Part D segments of the market, spending
would be less affected by higher launch prices, CBO estimates, because
manufacturers would have more flexibility to manage rebates to maximize
their revenues in those sectors.