How Will Medicare’s New Drug Rebate Law Work?

WASHINGTON — The Biden administration issued initial guidance yesterday on how it plans to implement the Medicare drug rebate program, which will affect doctors who administer drugs under Medicare Part B.

The program, passed in August 2022 as part of the Inflation Reduction Act, requires manufacturers who raise their drugs’ prices faster than the rate of inflation to pay rebates to the federal government. The rebate rule, which applies to drugs administered to beneficiaries under either the Medicare Part B or Medicare Part D program, requires the companies to pay the rebates directly to the Medicare trust fund.

Medicare beneficiaries whose prescription drugs are subject to a rebate “will also benefit through lower cost-sharing” starting in April when the program begins to kick in, Chiquita Brooks-LaSure, administrator of the Centers for Medicare & Medicaid Services (CMS) told reporters during a phone call Thursday. “The inflation rebate program will make prescription drugs more affordable for millions of people and strengthen Medicare’s sustainability for future generations.”

If the inflation Reduction Act had been in place from July 2021 to July 2022, 1,200 prescription drugs would have been subject to the rebates according to an HHS report, Meena Seshamani, MD, PhD, director of the Center for Medicare at CMS, said during the call. “Today’s initial guidance is an important step in our work to lower out-of-pocket drug costs.”

The guidance was released only a few days after a report from the HHS Inspector General concluded that “unless CMS takes action to remedy several administrative issues, the agency will face the following challenges in implementing rebates: identifying products subject to Part B rebates and excluding claims from Part B rebate calculations that were already subject to rebates under the Medicaid Drug Rebate Program and discounts under the 340B Drug Discount Program.”

The report noted that in the Part B program, “rebates are calculated on the basis of increases in Part B payment amounts, which are set at the HCPCS [Healthcare Common Procedure Coding System] code level. However, in a small number of cases, a single HCPCS code may represent several single source drugs from different manufacturers. For these codes, CMS would find it difficult to determine which manufacturer(s) owe rebates, as well as the number of units and amount of rebates associated with each drug.”

In addition, when it comes to claims for “dual eligibles” — low-income Medicare beneficiaries that are also enrolled in the Medicaid program — there “are no fields on Part B claims that indicate whether Medicaid will pay a portion of the claim and that, as a result, the units would be subject to Medicaid rebates,” the report outlined.

The report suggested possible solutions to both problems. For the HCPCS issue, CMS could “require providers to include on claims national drug codes identifying the specific drug administered and the manufacturer of the drug; or for HCPCS codes associated with single source drugs from multiple manufacturers, develop a method to apportion the number of units and amount of rebates to each manufacturer.”

For the Medicaid issue, CMS could “use the MMA [Medicare Modernization Act] File to identify whether a Part B claim is for a dual eligible enrollee; add a field to Part B claims to indicate whether Medicaid will pay a portion of the claim; or develop an automated mechanism to identify Part B claims for which Medicaid will pay a portion,” they said.

Asked during the phone call about the report, Seshamani responded that now that the agency has issued its draft guidance, “we are interested in getting comments on these kinds of issues.”

Because doctors who administer Part B drugs pay for them upfront and are later reimbursed by Medicare, the rebate program appears to potentially affect them as well, particularly because Medicare’s reimbursement is calculated based on the drug’s average sales price (ASP) plus a 6% administration fee.

In a Medicare Learning Network post on Thursday, the agency said that once the rebate program starts, if a Part B drugmaker raises prices higher than the inflation rate, “patient coinsurance will be based on 20% of the inflation-adjusted payment amount for the quarter and will be reflected as a percentage (that is, less than 20%) of the Medicare Part B payment amount. The Medicare portion of your payment will be increased for the difference between the Medicare Part B payment amount and patient coinsurance, minus any Part B deductible and sequestration.”

For instance, the post said, “if the Medicare Part B payment amount for the drug is $100 and the patient coinsurance is 18.525%, you would charge the patient $18.52. Typically, the Medicare portion of payment to practitioners for Part B drugs and biologicals is limited to 80%. When the patient coinsurance is adjusted, the percentage of the Medicare portion of payment to you will be higher. In this example, the percentage of the Medicare portion would be 81.475% or $81.48 of the Medicare Part B payment amount.”

“You must charge patients the correct amount of coinsurance, which may change quarterly,” it read.

The post did not address the issue of how the “ASP plus 6%” calculation would be affected by the rebate law, particularly when a drug’s price is increased more than the inflation rate. Asked about how physician reimbursement would be affected in that case, a Medicare spokesperson said in an email that “the Medicare portion of the provider’s payment will be increased for the difference between the Medicare Part B payment amount and patient coinsurance, minus any Part B deductible and sequestration [a type of payment cut mandated by Congress].”

Sen. Ron Wyden (D-Ore.), chairman of the Senate Finance Committee, said he was glad to see the rebate program getting started.

“I’m pleased to see CMS beginning this transformational Medicare policy to protect seniors from price gouging by drug companies,” Wyden said in a statement. “It’s long past time that seniors stop footing the bill for rip offs that pad Big Pharma’s profits.”

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