Drug companies to pay rebates for prices that go higher than inflation

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Drug companies that raise prescription drug prices faster than the inflation rate will pay rebates to the federal government or face fines.

The Centers for Medicare and Medicaid Services on Thursday released the initial guidance on the Medicare Prescription Drug Inflation Rebate Program. Drug companies will be required to pay rebates to the Medicare Trust Fund for prices that outpace inflation on certain drugs dispensed to people who have Medicare.

Companies that don't pay face a civil monetary penalty of $125% of the rebate amount, CMS said. 

CMS is accepting comments through March 11 and said it would consider revisions. CMS anticipates issuing revised guidance later this year.

WHY THIS MATTERS: THE TIMELINE

On April 1, people with traditional Medicare and Medicare Advantage plans may pay a lower coinsurance for certain Part B drugs with price increases higher than inflation. 

In 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% of all prescription drug spending.

Requiring rebates for price increases above inflation for drugs already on the market may help reduce future growth in prescription drug spending, CMS said. 

As part of the initial guidance, CMS is seeking comments from the public on:

• 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.

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, CMS said. 

THE LARGER TREND

The guidance follows the State of the Union address in which President Biden talked about the importance of lowering the cost of prescription drugs. The guidance also follows the law of the Inflation Reduction Act, said CMS Administrator Chaquita Brooks-LaSure.

"In the U.S. we pay two to three times more for prescription drugs," Brooks-LaSure said on Thursday.

This is the nation's first prescription drug law for companies to pay rebates to Medicare when drug prices increase faster than the rate of inflation. The Inflation Reduction Act, which passed in August 2022  allows Medicare to negotiate drug prices for 10 high-cost drugs starting in 2026. 

The CMS guidance is being taken as the Senate Judiciary Committee is advancing drug pricing bills. The bipartisan bills advance policies to thwart anticompetitive practices, such as "product hopping," "evergreening," "pay for delay" and the filing of sham citizen petitions that permit manufacturers to extend monopolies and block access to lower-cost generic drugs and biosimilars, Premier said.

The Campaign for Sustainable Rx Pricing is urging for full Senate passage of the Affordable Prescriptions for Patients Act of 2023.

CSRxP executive director Lauren Aronson said, "We encourage the full Senate to swiftly pass this legislation that will crack down on Big Pharma's anti-competitive tactics, like patent-thicketing and product-hopping, that extend monopolies, block more affordable alternatives and keep drug prices high."

ON THE RECORD

"Public feedback is critical to successful implementation of the new drug law," said Dr. Meena Seshamani, 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." 

Twitter: @SusanJMorse
Email the writer: SMorse@himss.org