HHS Releases Initial Guidance for Medicare Prescription Drug Inflation Rebate Program

Under President Biden’s prescription drug law, drug companies will pay rebates to the federal government for raising prescription drug prices faster than the rate of inflation

As part of President Biden’s historic Inflation Reduction Act, the nation’s new prescription drug law, for the first time ever, drug companies will pay rebates to Medicare when their prescription drug prices increase faster than the rate of inflation for certain drugs dispensed to people with Medicare.

The U.S. Department of Health and Human Services (HHS) announced next steps outlining how the Department will implement the new Medicare Prescription Drug Inflation Rebate Program, which will lower drug costs for millions of Americans. Today, the Centers for Medicare & Medicaid Services (CMS) released the initial guidance detailing the requirements and procedures for the new program.

There is no reason Americans should have to pay two to three times more than people in other countries for the same prescription drugs,” said HHS Secretary Xavier Becerra. “This Administration is committed to lowering health care costs, and with President Biden’s new lower cost prescription drug law, we are delivering results by reining in the excessive cost of skyrocketing prescription drug prices. Now drug companies that increase their prices faster than the rate of inflation will have to pay rebates back to the Medicare Trust Fund.

“With today’s guidance, we are continuing to implement the Inflation Reduction Act, which lowers out-of-pocket drug costs for people with Medicare and improves the sustainability of the Medicare program for current and future generations,” said CMS Administrator Chiquita Brooks-LaSure. “The Medicare Prescription Drug Inflation Rebate Program will require drug companies with excessive increases in drug prices to pay rebates to Medicare.”

For decades, Americans have spent more on prescription drugs than people in other countries — paying two to three times more for the same drugs. The Biden-Harris Administration has made lowering high prescription drug costs in America a key priority, and the new prescription drug law makes changes to Medicare so that millions of people with Medicare will spend less on their prescriptions. For the first time ever in Medicare, through the new Medicare Prescription Drug Inflation Rebate Program, drug companies will have to pay for increasing prescription drug prices faster than the rate of inflation. In addition, people with Medicare may pay a lower coinsurance for certain Medicare Part B drugs.

If the new prescription drug law had been in place from July 2021 to July 2022, more than 1,200 prescription drugs potentially would have been subject to the inflation rebates. Under the Medicare Prescription Drug Inflation Rebate Program, drug companies who raise prices faster than the rate of inflation will be required to pay rebates to the Medicare Trust Fund. Below is a timeline of key dates for implementing the Medicare Prescription Drug Inflation Rebate Program:

• October 1, 2022: 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: 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.

The Medicare Prescription Drug Inflation Rebate Program will require rebates to the Medicare Trust Fund in cases of price increases that exceed inflation, particularly brand name drugs, which make up 80 percent of all prescription drug spending. Since one of the primary drivers of increased prescription drug spending has been increases in spending per prescription, requiring rebates for price increases above inflation for drugs already on the market may help reduce future growth in prescription drug spending.

As part of the initial guidance released today, CMS is seeking comment from the public on key topics, including:

• the process to determine the number of drug units for rebatable drugs;
• reduction of rebate amounts for certain Part B and Part D rebatable drugs in shortage and in cases of severe supply chain disruptions;
• the process to impose civil monetary penalties on manufacturers of Part D rebatable drugs that fail to pay rebates;
• assuring accuracy of the inflation rebate payments; and
• other areas.

“Public feedback is critical to successful implementation of the new drug law,” said Dr. Meena Seshamani, M.D., Ph.D., CMS Deputy Administrator and Director of the Center for Medicare. “Technical expertise and feedback from a wide range of interested parties is crucial for our ability to strike the right balance in implementing the law, ensuring access to affordable and innovative therapies.”

Comments received by March 11, 2023, will be considered for the revised guidance. CMS anticipates issuing revised guidance later in 2023 for the Medicare Prescription Drug Inflation Rebate Program.

View a fact sheet on the Medicare Prescription Drug Inflation Rebate Program guidance.

Read the Medicare Part B Prescription Drug Inflation Rebate guidance.

Read the Medicare Part D Prescription Drug Inflation Rebate guidance.