Medicare Inflation Rebates: Extending Protections to Medicare Advantage Enrollees
The Inflation Reduction Act (IRA) introduces key measures to curb Medicare prescription drug expenses, notably through inflation rebates where drug companies must refund Medicare if drug prices rise faster than inflation. This initiative holds potential to moderate market-wide price increases by deterring rapid list price hikes from brand-name drug manufacturers. However, current implementation by the Centers for Medicare and Medicaid Services (CMS) limits full impact, particularly by excluding Medicare Advantage (MA) plan enrollees from inflation rebate calculations for physician-administered (Part B) drugs. Since MA plans encompass over half of Medicare beneficiaries, excluding them reduces the deterrent effect on price increases and can lead to higher costs in private insurance markets as well.
Historically, federal policies have compelled drug manufacturers to pay rebates when prices exceed inflation in Medicaid and the 340B program. The IRA extended a more focused rebate requirement to Medicare for single source brand-name drugs exceeding $100 in annual per-enrollee spending. The rebate is calculated based on the difference between price increases and inflation, applied to units sold to Medicare beneficiaries excluding 340B discounts, ensuring manufacturers do not increase net revenue through excessive price hikes in this population.
The inclusion of Medicare in inflation rebates is significant, constituting roughly one-third of total prescriptions. This broader coverage amplifies the likelihood that manufacturers will avoid unjustified price increases. The Congressional Budget Office has noted that these rebates could modestly reduce drug costs for employer-based insurance markets as well, benefiting a wider population beyond Medicare.
Implementation divides between Part D drugs (pharmacy-dispensed) and Part B drugs (physician-administered) have led to inconsistent rebate application. While Part D rebate calculations include drugs sold to MA enrollees, Part B rebate calculations currently exclude these units. Operational challenges, such as data collection on whether a 340B discount applies, have driven CMS to limit Part B rebate assessments to fee-for-service Medicare only.
Drug manufacturers have argued that rebate requirements do not extend to MA enrollees based on statutory interpretations and payment structures. However, a detailed legal analysis suggests these claims lack merit. Statutory language defines a “Part B rebatable drug” based on payment under Part B regardless of enrollee coverage under MA (Part C). Additionally, the statutory exclusion for units “not separately payable and packaged” does not apply to Part B drugs dispensed to MA enrollees, as these drugs are not bundled with other services.
Historical legislative context and policy intent further support including MA enrollees in rebate calculations. Early versions of the IRA contemplated broader rebate applicability, and the final exclusion lacks a clear statutory or policy justification. Moreover, other Medicare rebate-related statutory provisions do not exclude MA units, underscoring this inconsistency.
Operational barriers, such as the need for reporting format changes by MA plans to include 340B-related data and timing challenges in claim reporting, are noted but considered surmountable. CMS plans for a true-up process and upcoming regulatory updates related to the Medicare drug price negotiation program could accommodate these changes, enhancing oversight and rebate administration.
Extending inflation rebates comprehensively to include Part B drugs dispensed to MA enrollees has the potential to reduce drug price pressures across insurance markets. As CMS responds to recent executive orders on drug pricing, prioritizing these operational adjustments would expand consumer protections. Should CMS not act, congressional intervention remains a viable route to ensure broader implementation and maximize the IRA's impact on healthcare costs.