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Inflation Reduction Act: Impact of inflation penalty rebate on Part B drugs

15 May 2023

In this 4th edition of an ongoing blog series on the key provisions of the Inflation Reduction Act of 2022 (IRA), we have added a synopsis of the recently announced Medicare Part B drugs subject to inflationary rebates. This shows that even in an area that seems straightforward, The Centers for Medicare & Medicaid Services (“CMS”) is still ironing out the details of certain aspects of the calculations. After the list of drugs subject to inflation penalties was announced, it had to be revised despite publicly available data reinforcing the difficulty in ascertaining the impact on drug manufacturers.

Part 1 of the blog series provided an overview of the IRA’s key provisions
Part 2 assessed price increase levels pre/post-2020 election through the end of 2022
Part 3 illustrated the impact that both the IRA and the period of post-pandemic higher inflation had on January 2023 price changes, It also talked about the top 50 products accelerating price increases, and how many products stopped short of triggering the inflation penalty

In-depth analysis of Part B inflation penalty rebate

We examined the key aspects of the IRA’s inflation penalty rebate Part B component’s effect on the top 50 Medicare Part B drugs. As stated in the regulations, the Part B drugs measure the difference in Average Sales Price (“ASP”) compared to inflation over certain time periods – which is like the process for Part D drugs except for the price being measured (ASP vs. annual Average Manufacturers Price for Part D drugs) and the timeframe (quarterly for Part B drugs, annually for Part D drugs). Since ASP was mandated by the Medicare Modernization Act of 2003 and came into effect in January 2005, as the primary method of reimbursement for Part B drugs, with only a small mark-up (ASP+6% but really ASP+4.3% due to sequestration), the Part B drugs have generally had smaller individual price increases (that sometimes are more frequent) so not to disrupt the reimbursement sensitive landscape. Because of this and the impact on reimbursement, we would expect to see a smaller number of Part B drugs incur inflation penalties.

Since both ASP and CPI-U inflation rates are publicly available, CMS recently announced the complete, specific methodology of the Part B inflation penalty rebate, it was not surprising to see the initial list of 27 Part B drugs published on March 15th that were to incur the first inflation penalty based on the timeline of IRA enactment. As seen in table 1 from Fierce Healthcare website:

Table 1: Fierce Healthcare’s listing of 20 Part B drugs subject to the inflation penalty under the IRA

AbelcetInvasive fungal infectionsLeadiant Biosciences
AkynzeoPrevention of chemotherapy-induced nausea and vomitingHelsinn Healthcare S.A
AtgamUsed after kidney transplant to keep the body from rejecting the organPfizer Inc
AveedTreat low testosterone in adult malesEndo International Plc
Bicillin C-RAntibioticPfizer Inc
Bicillin L-AAntibioticPfizer Inc
CarnitorCarnitine deficiencyLeadiant Biosciences
CytogamCytomegalovirus disease infection in transplant patientsKamada Ltd
Flebogamma DIFPrimary immunodeficiency and autoimmune diseaseGrifols SA
FragminTreat blood clotsPfizer Inc
HumiraArthritisAbbVie Inc
LeukineBlood cancerPartner Therapeutics
MinocinAnti-infectiveBausch Health Companies
NipentBlood cancerPfizer Inc
PadcevUrothelial cancerSeagen Inc
RybrevantLung cancerJohnson & Johnson
Signifor LARAcromegaly and Cushing's diseaseRecordati
SylvantMulticentric Castleman's diseaseEUSA Pharma (US) LLC
XiaflexPeyronie's diseaseEndo International Plc

What was a bit surprising was CMS “quietly” paring down the drugs from 27 down to 20 on March 30. According to Fierce Healthcare, “As spotted by Endpoints, the press release and accompanying guidelines released by HHS were updated with the removal of several previously listed drugs”.

These are noted in table 2 below.

Table 2: The 7 drugs removed from IRA inflation penalty according to Firece Healthcare.

ElzonrisRare form of blood cancerMenarini Group
FetrojaSerious bladder or kidney infections in adultsShionogi & Co Ltd
FolotynT-cell lymphomaAcrotech Biopharma LLC
TecartusBlood cancerGilead Sciences Inc
Winrho SDFBleeding disorderKamada Ltd's
XipereEye disease macular edema associated with uveitisBausch and Lomb's
YescartaBlood cancerGilead Sciences Inc

The reason the 7 drugs were removed from the inflationary rebates was not clear but is likely a case of working out the kinks, CMS in an emailed statement said the change was a result of “standard procedure” when the agency releases the public ASP files. It is possible these drugs simply restated their ASP, which is allowed by CMS, but what is clear - there are still lingering questions about the swift implementation of the legislation and the accompanying methodologies as well as unintended consequences.

This assessment shows there is still much to be learned as more details about the IRA and its supporting methodologies are provided. The remaining details still to be worked out during the rollout of the individual components are substantial. We will further explore these topics in upcoming blog posts on the impact of the IRA.




Jack M Mycka
Jack M Mycka
Matthew Skoronski
Matthew Skoronski

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