HHS releases new guidance implementing key Medicare drug rebate program

The Biden administration rolled out new guidance to drugmakers for meeting a new requirement to dole out rebates if their prices on Medicare Parts B and D go above inflation. 

The guidance, released Thursday by the Department of Health and Human Services (HHS), implements a key part of the Inflation Reduction Act passed last year. Drug companies had to start paying rebates for raising prices past inflation back in January, with the amounts going back to Medicare. 

“We are fighting to rein in the excessive cost of skyrocketing prescription drug prices, and now drug companies that increase their prices faster than the rate of inflation will have to pay rebates back to the Medicare Trust Fund,” said HHS Secretary Xavier Becerra in a statement. 

On Oct. 1, 2022, the first 12-month period began in which drug companies had to issue rebates for any Part D drugs that had price hikes that outpaced inflation. Starting Jan. 1, those drugmakers had to begin paying any rebates, HHS said. 

Starting April 1, Medicare and Medicare Advantage beneficiaries could also pay a lower cosinurance for any Part B drug that violates the law. However, the Centers for Medicare & Medicaid Services (CMS) will not send the first invoices to drugmakers for the rebates until 2025. 

The new rebate program applies to any price hike that exceeds inflation, especially for pricier brand-name drugs. It also applies to single-source, biologic, biosimilar and generic drugs in Part D and single-source or biologics, including some biosimilars, for Part B. 

“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,” according to an HHS release. 

HHS’ guidance calls for initial requirements and procedures for companies to implement the rebate program.

Drugmakers can submit comments on several parts of the implementation, including:

  • How CMS will determine the number of drug units for calculating rebates
  • Allocating financial responsibility for rebates when there is more than one manufacturer of a drug subject to the rebate
  • The penalties drugmakers could face if they do not pay the rebates. The statute calls for monetary penalties of at least 125% of the rebate amount.

The rebate program is one of several drug price reforms passed as part of the Inflation Reduction Act. The law also caps monthly Medicare Part D beneficiary costs at $2,000 a month and caps insulin costs at $35 a month. 

It also gives Medicare the power to negotiate for lower prices on a small subset of drugs starting in 2026.