Signed into law in April 2022, the Inflation Reduction Act (IRA) represents a key step in the U.S. government’s efforts to reduce prescription drug costs, particularly for Medicare beneficiaries. A central provision of the IRA requires drug manufacturers to pay rebates to the federal government if they raise the prices of certain eligible Medicare Part B and Part D drugs faster than the rate of inflation, as measured by the Consumer Price Index for All Urban Consumers (CPI-U). By imposing these rebates, the IRA aims to curb excessive price increases and ease the financial burden on Medicare patients.

How Inflation Rebates Work

To determine if a drug is subject to an inflation rebate, price changes are measured using the average sales price (ASP) for Part B drugs and the average manufacturer price (AMP) for Part D drugs. If the price of a drug increases beyond the inflation rate, manufacturers must pay the difference back to Medicare.

Inflation rebates for Part D drugs are calculated over a 12-month period, with the first period beginning on October 1, 2022. For Part B drugs, however, inflation rebates are calculated quarterly, with the first quarter beginning on January 1, 2023. The rebate amount is calculated by multiplying the number of units sold under Medicare by the amount, if any, that a drug’s price in a given year surpasses its inflation-adjusted price.

Impact to Beneficiaries

As of April 1, 2023, beneficiaries taking Part B drugs with prices that have increased faster than the rate of inflation also receive reduced coinsurance. For these drugs and biologicals, the beneficiary coinsurance will be capped at 20 percent of the inflation-adjusted amount. This provision is designed to reduce out-of-pocket expenses for Medicare beneficiaries, particularly those taking high-cost medications.

Trends in Part B Drugs Subject to Inflation Rebates

2024 marks the first full year of publicly available data for Part B drugs subject to inflation rebates, as the Centers for Medicare & Medicaid Services (CMS) has made the list of Part B drugs publicly available for the purposes of showing the reduced coinsurance for patients. However, CMS has not indicated whether it will make a list of Part D drugs subject to inflation rebates publicly available.

Applied Policy analyzed the Part B drugs subject to inflation rebates for 2024, and identified the following key trends:

• Number of Drugs Triggering Rebates: The number of drugs for which rebates were owed varied each quarter, with Q2 2024 having the fewest at 41 drugs and Q3 the highest at 64 drugs. In Q4, rebates were owed for 54 drugs, while 48 drugs were subject to rebates in Q1. This trend highlights the dynamic pricing environment in the pharmaceutical market.
• Variation in Beneficiary Coinsurance Percentages: Throughout 2024, inflation-adjusted coinsurance percentages across all four quarters ranged from 3.820 percent to 19.998 percent, reflecting significant variability in the inflation rebates owed for different Part B drugs.
• Drugs Triggering Rebates All Four Quarters: Manufacturers of some drugs, such as Blincyto, Envarsus XR, Kymriah, and Fosaprepitant, owed rebates for all four quarters in 2024. For Blincyto, Envarsus XR, and Kymriah, inflation-adjusted coinsurance was 19 percent or higher (except in Q3 for Blincyto), but for Fosaprepitant, the coinsurance was under 4 percent in all but one quarter, further demonstrating how inflation rebates owed vary.
• Oncology Drugs: Many drugs for which rebates are owed in 2024 are used in oncology, including Blincyto (used in acute lymphoblastic leukemia (ALL) treatment), Kymriah, and Yescarta (both are CAR T-cell therapies for cancer). These drugs were consistently subject to inflation rebates across multiple quarters.
• Immunotherapy Drugs: Several immunotherapy drugs for which rebates are owed in 2024, including Envarsus XR (used for prophylaxis of organ rejection in kidney transplant patients) and Keytruda and Opdivo (both used to treat several types of cancer).

Rebate Invoicing and Penalties

Manufacturers of drugs subject to inflation rebates will not receive invoices for the first two rebate periods until late 2025, although preliminary reports will be issued earlier. Once invoices are received, manufacturers will have 30 days to make payment. Failure to comply will result in civil monetary penalties of at least 125 percent of the rebate amount.

Conclusion

The IRA’s inflation rebate provisions are part of a broader effort to reduce prescription drug costs for Medicare beneficiaries and the federal government. By requiring drug manufacturers to pay rebates for price increases that exceed inflation, the IRA aims to mitigate out-of-pocket expenses for beneficiaries while also incentivizing manufacturers to maintain more stable pricing.

However, navigating the complexities of the IRA’s provisions can be challenging for drug manufacturers. Applied Policy is ready to support clients by providing comprehensive guidance on managing and mitigating the impact of IRA inflation rebates.