Explaining the Prescription Drug Inflation Rebate Act

An overview

The Medicare Prescription Drug Inflation Rebate Program (2022) is a policy proposed by the U.S. Department of Health and Human Services (HHS) to address the rising cost of prescription drugs. The program aims to reduce the cost of prescription drugs by requiring pharmaceutical manufacturers to provide rebates to Medicare if they increase the price of their drugs beyond the rate of inflation.

Under the program, pharmaceutical manufacturers would be required to pay a rebate to Medicare if the price of their drugs increased faster than the rate of inflation. The rebate would equal the difference between the drug's original price and the new, higher price, minus the inflation rate.

What are the benefits?

The rebate would apply to drugs covered under Medicare Part B (physician-administered drugs) and Part D (retail prescription drugs), which are the parts of Medicare that cover outpatient and prescription drug services, respectively. The HHS will regularly look at price hikes and inform manufacturers what rebates should pay, but those who choose not to comply would face a penalty of up to 125% of the rebate that they owe the program (quite the incentive to ensure compliance).

The goal of the Medicare Prescription Drug Inflation Rebate Program is to encourage manufacturers to keep the prices of their drugs in line with inflation, which would help to reduce the cost of prescription drugs for Medicare beneficiaries. According to the HHS, the program could save the federal government more than $170 billion over ten years, while also lowering out-of-pocket costs for Medicare beneficiaries.

However…

The program has faced criticism from some industry groups and lawmakers, who argue that it could stifle innovation and limit patients' access to new treatments. They also argue that the program could lead to higher costs for privately insured patients, as manufacturers may raise prices for those patients to make up for lost revenue from Medicare rebates.

Despite these concerns, the Medicare Prescription Drug Inflation Rebate Program is set to take effect in 2022.

Below is a timeline of key dates for implementing the Medicare Prescription Drug Inflation Rebate Program taken from the CMS press release statement:

• October 1, 2022: This began the first 12-month period for which drug companies will be required to pay rebates to Medicare for raising prices that outpace inflation on certain Part D drugs.
• January 1, 2023: This began the first quarterly period for which drug companies will be required to pay rebates for raising prices that outpace inflation on certain Part B drugs.
• April 1, 2023: People with Traditional Medicare and Medicare Advantage may pay a lower coinsurance for certain Part B drugs with price increases higher than inflation.
• 2025: CMS intends to send the first invoices to drug companies for the rebates.????

It remains to be seen how effective the program will be in reducing the cost of prescription drugs for Medicare beneficiaries, and whether it will have any unintended consequences for the pharmaceutical industry and other stakeholders.

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