Inflation Reduction Act

What is the Inflation Reduction Act?

The Inflation Reduction Act was signed into law in August 2022. Part of President Biden’s Build Back Better domestic policy agenda, the law includes policies related to tax, clean energy and healthcare. It also contains significant drug pricing reforms.

What Drug Pricing Provisions are in the Inflation Reduction Act?

The drug pricing reforms in the IRA include a new Part B negotiation program, new manufacturer rebates imposed for increasing list prices above the rate of inflation, redesign of the Part D program and new beneficiary out-of-pocket cap, a temporary bump in biosimilar reimbursement, and further delay of the Trump Administration’s “Rebate Rule.” Each of these changes are discussed in more detail below.

Part B Drug Price Negotiation

The IRA allows the HHS Secretary to negotiate prices for the highest cost drugs in Medicare Parts B and D without generic or biosimilar competition following the end of their market exclusivity (defined as 7 years for small molecule drugs; 11 years for biologics). Negotiated prices for Medicare Part D drugs will be available in 2026 and for Medicare Part B drugs in 2028.

  • In 2026, HHS may negotiate up to 10 drugs in Part D
  • In 2027, HHS may negotiate up to 15 drugs in Part D
  • In 2028, HHS may negotiate up to 20 drugs in Parts B and D (combined)
  • In 2029 and years thereafter, HHS may negotiate up to 20 drugs in Parts B and D

The law also allows the Secretary to delay negotiation of a biologic for up to two additional years, if a biosimilar is expected to enter the market before the negotiated price would take effect.

The Secretary is not permitted to agree to a negotiated price, known as the “Maximum Fair Price” (MFP), that exceeds the MFP ceiling, defined as:

  • 75% of its 2021 non-federal AMP for “short monopoly drugs” (a small molecule drug that has been on the market for less than 12 years)
  • 65% of its 2021 non-federal AMP for “extended monopoly drugs” (a drug that has been on the market for 12-16 years)
  • 40% of its 2021 non-federal AMP for “long monopoly drugs” (a drug that has been on the market for more than 16 years)

Manufacturers failing to negotiate with HHS will be subject to excise taxes of 65% on the drug’s gross sales, rising to 95% for each quarter of noncompliance.

MFP agreements continue in perpetuity as the drug stays on the top 50 highest-spend drug lists for both Parts B and D. Renegotiations may be triggered for new indications, changes in exclusivity status, R&D and product costs, and market data.

Negotiated prices will be available to both Medicare fee-for-service and Medicare Advantage, but not commercial plans.

Provider Reimbursement: Providers will be reimbursed for Part B drugs at 106% of MFP. The Part D negotiated price is capped at MFP plus any dispensing fee.

The IRA creates a new mandatory rebate to be paid by drug manufacturers for increasing Parts B and D list prices above the rate of inflation beginning on October 1, 2022 for Part D drugs and January 1, 2023 for Part B drugs. Rebate amounts will be calculated on a quarterly basis and assessed based on the percentage of the drug price exceeding the inflation benchmark.  Manufacturers refusing to pay the mandated rebates would be subject to civil monetary penalties equal to or at least 125 percent of the rebate amount for such calendar quarter.

Beginning April 1, 2023, beneficiary coinsurance for a Part B rebatable drug will be 20 percent of the inflation-adjusted Part B drug payment.

Beginning in 2024, beneficiary coinsurance in the catastrophic phase of Part D coverage is eliminated (prior to IRA, it was 5 percent). In 2025, the IRA creates a new $2,000 out-of-pocket cap for Part D and MA beneficiaries (adjusted annually).

This section also reduces the government reinsurance in the catastrophic phase of Part D coverage from 80% to 40% for applicable drugs and 20% for non-applicable drugs. It converts the current coverage gap discount program into a benefit-wide responsibility, requiring manufacturers of branded drugs to contribute to payments in both the initial (10%) and catastrophic phases (20%) of the benefit, and allowing for a discount phase-in for certain drug manufacturers. The IRA also allows Medicare beneficiaries to spread MA and Part D out-of-pocket costs throughout the plan year (known as “patient smoothing”).

The IRA also creates a Part D premium stabilization program. Current law requires beneficiaries to contribute 25.5% towards the premium cost. Under IRA, for 2024-2029, the monthly base premium is capped at a 6% increase. Starting in 2030, the monthly base premium must be equal to the lesser of 106% of the base premium for 2029 or the base premium that would have been determined for 2030 under current law.

The IRA provides a temporary add-on payment increase for Part B biosimilar drugs. The provision would increase reimbursement for qualifying biosimilars to Average Sales Price (ASP) +8% beginning on October 1, 2022 for 5 years. A qualifying biosimilar is defined as one whose reference product’s ASP is greater than the biosimilar’s ASP. Non-qualifying biosimilars will continue to receive ASP+6%. The list of qualifying biosimilars can change quarterly based on ASP fluctuations.

Medicare sequestration still applies.

The IRA further delays implementation of the Trump Administration’s “Rebate Rule” (Fraud and Abuse; Removal of Safe Harbor Protection for Rebates Involving Prescription Pharmaceuticals and Creation of New Safe Harbor Protection for Certain Point-of-Sale Reductions in Price on Prescription Pharmaceuticals and Certain Pharmacy Benefit Manager Services Fees) through January 1, 2032. This rule was intended to channel existing rebates between manufacturers and PBMs into patient savings at the pharmacy counter, eliminating the safe harbor for rebates and establishing a new safe harbor for discounts extended to patients at point-of-sale. The Rebate Rule cost the federal government nearly $180 billion due to its effect of increasing premiums. By delaying implementation of the rule, the federal government saves billions of dollars.

BBBA and IRA Advocacy

The US Oncology Network issued a statement expressing strong concerns with the drug pricing provisions in the Build Back Better Act (the precursor to the Inflation Reduction Act), particularly the new Part B negotiation program. Click Here to read the statement.

During consideration of the IRA, Senator John Barrasso, MD (R-WY) and Congressman Michael Burgess, MD (R-TX) introduced amendments that would allow drug manufacturers to send rebates on negotiated drugs directly to the government in order to avoid reductions to provider reimbursement. Unfortunately, neither of these votes received a floor vote. The US Oncology Network wrote a letter in support of the Barrasso Amendment. Click Here to read the letter.