Medicare Part B enrollees as of July 1, 2024 will experience savings on coinsurance for 64 drugs selected by the Biden administration. Pursuant to the Inflation Reduction Act and its Medicare Prescription Drug Inflation Rebate Program, these select drugs will have a lower coinsurance rate through September 30, 2024 to adjust for drug prices rising faster than the rate of inflation. The anticipated savings are substantial, especially with more than 750,000 Medicare beneficiaries using these drugs annually and another 300,000 individuals qualifying for expanded benefits under the Low Income Subsidy program.
Overview of the Rebate Program
Under the Inflation Reduction Act, certain pharmaceutical companies are required to pay rebates to Medicare in the event their drug prices increase at a rate higher than inflation. This requirement is similar to the American Rescue Plan Act’s provision that on January 1 eliminated the statutory cap on rebates paid to Medicaid by manufacturers. The rebate program—applicable to Medicare Part B rebatable single source drugs, biologics, and biosimilars—applies a reduction to beneficiary coinsurance such that beneficiaries are only required to pay a coinsurance equal to 20% of the inflation-adjusted payment amount.
The list of drugs selected for the rebate program is published by the Centers for Medicare and Medicaid Services (CMS) through the Medicare Part B Quarterly Sales Pricing (ASP) files and is updated quarterly. For the upcoming rebate period of July 1 to September 30, CMS has selected 64 Part B rebatable drugs based on the inflation-adjusted payment amount, including certain cancer treatments and prescriptions for rare genetic disorders. CMS estimates that the rebate program will provide beneficiaries with coinsurance savings of as much as $1–$4,593 per day.
Implementation of the Medicare Prescription Drug Inflation Rebate Program is ongoing, with expanded benefits at reduced prices continuing to be a core focus.
- October 1, 2022: Beginning of the first 12-month period for which drug companies are required to pay rebates to Medicare for raising prices that outpace inflation on certain Part D drugs
- January 1, 2023: Beginning of the first quarterly period for which drug companies are required to pay rebates for raising prices that outpace inflation on certain Part B drugs
- April 1, 2023: Certain qualifying individuals with Traditional Medicare and Medicare Advantage began paying a lower coinsurance for certain Part B drugs with prices increasing at a rate faster than inflation
The rebate program includes certain exceptions for drugs experiencing shortages or disruptions in the supply chain. These exceptions include the following:
- CMS will reduce the inflation rebate amount for a Part B or Part D rebatable drug listed on a US Food and Drug Administration drug shortage list, with reductions based on the length of time the drug is in shortage and greater reductions for plasma-derived products and sole-source Part D rebatable generic drugs
- CMS will apply a time-limited, standard reduction in the rebate amount for severe supply chain disruptions for a Part B or Part D rebatable biosimilar or Part D rebatable generic drug or when a Part D rebatable generic drug is likely to be in shortage
Additionally, CMS has indicated that it may consider a policy to exclude units of discarded drugs or biologicals for which drug companies separately owe a discarded drug refund from the Part B inflation rebate calculations.
CMS intends to begin collecting by September 30, 2025 the Part B inflation rebates owed to Medicare for applicable 2023 and 2024 quarters. Collected rebates will be deposited into the Federal Supplementary Medical Insurance Trust Fund with the goal of sustaining Medicare for future generations.
In addition to these efforts, as of January 1, the Internal Revenue Service capped annual drug costs at roughly $3,500 for certain qualifying Medicare Part D enrollees. In 2025, the law will cap annual out-of-pocket prescription drug costs at $2,000 for all seniors covered by Medicare Part D. Efforts to expand benefits and reduce drug prices will continue to be a focal point for the administration and manufacturers would be well advised to evaluate their respective product portfolios to assess what, if any, financial impacts these expanded programs may have. Additionally, with the US Supreme Court’s recent Chevron ruling, challenges to these types of expanded benefits programs may be imminent.
Key Takeaways
The Medicare Prescription Drug Inflation Rebate Program is one of many drug pricing initiatives to stem from the Inflation Reduction Act and the Biden administration’s efforts to discourage what advocates contend are “runaway drug prices.” Accordingly, manufacturers with potentially applicable products should consider implementing targeted compliance efforts to account for the increasingly complex drug pricing regulatory scheme.
How We Can Help
Morgan Lewis lawyers are well suited to counsel drug manufacturers on complex federal and state government pricing matters and stand ready to assist companies in navigating these complex issues.