If Drug Prices Surpass Inflation, Medicare Rebates to be Paid by Pharmaceutical Companies

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TL/DR –

President Biden’s 2022 Inflation Reduction Act (IRA) aims to reduce the cost of prescription medicine for Medicare beneficiaries by forcing pharmaceutical companies to pay a rebate if their drug costs rise faster than inflation. An analysis of 10 Medicare Part D covered drugs from 2019 and 2023 showed that coverage increased for eight out of the ten drugs studied, with notable improvements in access without prior authorization and step therapy. However, researchers are concerned about potential future implications on drug access due to possible reactions from drug companies, utilization management practices, and adverse tiering.


The 2022 Inflation Reduction Act (IRA), enacted by President Biden, aims to save costs for Medicare beneficiaries. However, there are concerns regarding Big Pharma’s reaction to this legislation.

The Department of Health and Human Services (HHS) states beneficiaries might save between $1 and $3,575 per average dose through the IRA’s Medicare Prescription Drug Inflation Rebate Program, depending on individual coverage.

Key Takeaways

  • The IRA aims to save costs for Medicare beneficiaries.
  • Concerns are raised regarding Big Pharma’s reaction to the IRA.

The IRA aims to curb prescription drug costs under Medicare. It mandates companies to pay a rebate to the CMS if their drug costs rise faster than inflation. These rebates will be kept for future Medicare benefits.

Despite the IRA’s potential to increase access to several Medicare Part B and Part D prescription drugs, concerns are raised about how drug companies will adjust to the legislation post-2023.

Researchers studied 10 drugs under Medicare Part D in 2019 and projected their coverage percentages in 2023. They also examined authorization and access to these drugs without step therapy.

Among the 10 drugs, average coverage was high in 2019 and increased in 2023 with significant improvements for ustekinumab, dapagliflozin, and etanercept, according to Patterson et al.

Manufacturers may decrease Medicare drug costs if prices rise faster than inflation. | image credit: MP Studio / stock.adobe.com

Coverage percentages for all but two drugs (insulin aspart and sitagliptin) increased from 2019 to 2023. These two drugs saw increased access in other areas, especially without prior authorization and step therapy.

READ MORE: Medicare Part D Spending Reaches $48 Billion on Top 10 Drugs

Researchers highlight increased Medicare Part D coverage for drugs under the IRA. They express concerns about future access waning due to increased utilization management and adverse tiering, common for selected biologic and oncology drugs.

Insurance plans have significant leverage in drug pricing, utilization management, and adverse tiering. Although the IRA is taking measures against key factors driving drug costs, insurers can still influence beneficiaries’ choices for prescription drugs by manipulating pricing tiers.

However, out-of-pocket costs for beneficiaries are expected to cap in the next two years due to the IRA. The HHS stated that as of January 1, 2024, some Medicare Part D enrollees will see their annual out-of-pocket costs capped at about $3,500. In 2025, all people with Medicare Part D will benefit from a $2,000 cap on annual out-of-pocket prescription drug costs.

READ MORE: How Will Patients Benefit From Medicare Drug Price Negotiations?

References
1. U.S. Department of Health and Human Services. HHS announces savings for 41 prescription drugs thanks to inflation rebates from the Biden-Harris administration’s lower cost prescription drug law. hhs.gov. Published March 26, 2024.
2. Patterson JA, Wagner TD, O’Brien JM, Campbell JD. Medicare Part D Coverage of Drugs Selected for the Drug Price Negotiation Program. JAMA Health Forum. 2024;5(2):e235237. doi:10.1001/jamahealthforum.2023.5237

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