On February 9, 2023, the Centers for Medicare and Medicaid Services (“CMS”) released a memorandum (the “Memorandum”) setting forth CMS’s proposed methods for calculating so-called “Inflation Rebates” as mandated by the recent Inflation Reduction Act (“IRA”). The rebates are intended to decrease coinsurance and overall drug prices for Medicare Part D beneficiaries by offsetting any higher-than-inflation drug price increases from manufacturers with a countervailing rebate, paid directly to CMS. The Memorandum solicits comments on specific policy suggestions by March 11, 2023.
Purpose and Structure of the Rebate
Until passage of the IRA, CMS has had no authority to limit annual price increases for drugs covered under Part B or Part D, while Medicaid has a rebate system that requires drug manufacturers to provide refunds if prices grow faster than inflation. The IRA applies the same logic to Medicare, such that drug manufacturers are required to pay a rebate to the federal government if prices for single-source drugs and biologicals covered under Medicare Part B and nearly all covered drugs under Part D increase faster than the rate of inflation. An analysis by the Kaiser Family Foundation shows that half of all drugs covered by Medicare had list price increases that exceeded the rate of inflation between 2019 and 2020.
Rebate dollars would be deposited in the Medicare Supplementary Medical Insurance (“SMI”) trust fund. Manufacturers that do not pay the required rebate amount will face a penalty equal to at least 125% of the original rebate amount.
Topics for Comment
In general, CMS seeks comments on the following:
- Options to identify the Part D rebatable drug billing units on the prescription claim and Part D Prescription Drug Event (“PDE”) file to assure that manufacturers are being accurately billed for Part D drug inflation rebates;
- Options for methods to identify 340B units to exclude them from Part D rebatable drug units beginning in 2026 (340B drugs are not excluded from the rebate until 2026);
- Options to bill manufacturers in the future for Part D inflation rebates for Part D rebatable drugs of manufacturers that do not have an agreement in effect with the Secretary under the Medicaid Drug Rebate Program (“MDRP”), as well as Part D rebatable drugs that are not covered outpatient drugs under the MDRP;
- Processes to address reduction or waiver in rebates for drug shortages and severe supply chain disruptions;
- Mechanisms to ensure integrity of the Part D drug inflation rebate invoicing process, including the use of Preliminary Rebate Reports and Preliminary True-Up Reports; and
- Process to impose Civil Monetary Penalties (“CMPs”) on manufacturers that fail to pay rebates.
While CMS seeks input from manufacturers, other stakeholders are encouraged to comment as well. Non-manufacturers may be particularly interested in oversight and may want to comment on those sections that manufacturers have little incentive to offer constructive comments upon, such as how to capture manufacturer data from manufacturers not participating in the MDRP and the process to impose CMPs on recalcitrant manufacturers. Moreover, the manner in which waivers are distributed is an important consideration to both manufacturers and patients, as each stands to gain or lose if waivers are permitted or denied.
How Frier Levitt Can Help
Frier Levitt has substantial experience drafting and submitting comments to CMS and other agencies pursuant to solicitations for comment and can draft and produce comments for specific stakeholders within the industry. Public comments are reviewed by CMS and must be addressed in subsequent rulemaking, making the solicitation for comments a unique opportunity for stakeholders to have their voices heard. Contact Frier Levitt for more information or assistance with the preparation of a formal comment.
