The Inflation Reduction Act of 2022 (IRA) was signed into law on August 16, 2022 and includes several provisions to lower prescription drug costs for Medicare beneficiaries and reduce drug spending by the federal government. One provision of the IRA requires drug manufacturers to pay a rebate to the federal government if prices for certain drugs and biologics covered under Medicare Part B and Part D increase faster than the rate of inflation (CPI-U). Price changes will be measured based on the average sales price for Part B drugs and the average manufacturer price for Part D drugs. If price increases exceed inflation, drug manufacturers will be required to pay the difference in a rebate to Medicare equal to the total number of units sold in Medicare multiplied by the amount by which a drug’s price in a given year exceeds the inflation-adjusted price. Manufacturers that fail to pay the required rebate amount will face a penalty of at least 125% of the original rebate amount.
The Part D inflation rebate provisions took effect in October 2022, and the Part B inflation rebate provisions took effect in January 2023. CMS intends to send the first invoices to drug companies for the rebates beginning in 2025. Invoices for Part B inflation rebates for Medicare for calendar quarters in 2023 and 2024 will be issued by September 30, 2025, and invoices for Part D inflation rebates owed to Medicare for the 12-month periods beginning October 1, 2022 and October 1, 2023 will be issued by December 31, 2025. Please see a more detailed timeline in Figure 1 below.
On Thursday, February 9, 2023, the Centers for Medicare & Medicaid Services (CMS) released its initial guidance for the Medicare Part B and Part D Prescription Drug Inflation Rebate Program outlining the process for collecting rebates for both Medicare Part B and Part D drugs in line with changes from the IRA.
CMS is seeking public input on various topics, including, but not limited to, the following:
- Process to determine the number of drug units for Part B and Part D rebatable drugs
- Process to identify and remove excluded 340B units
- Processes to address reduction or waiver in rebates for certain Part B and Part D drugs in times of drug shortages and severe supply chain disruptions
- Process to impose civil monetary penalties on manufacturers of Part D rebatable drugs that fail to pay rebates
- Mechanisms to ensure the integrity of the inflation rebate determination process
Comments may be submitted to IRARebateandNegotiation@cms.hhs.gov with the subject line “Medicare Part D Inflation Rebate Comments” or “Medicare Part B Inflation Rebate Comments” by March 11, 2023.
Key Dates for Implementation:
Figure 1: CMS Factsheet: Medicare Prescription Drug Inflation Rebate Program Initial Guidance