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

In this 4^th 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.

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 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

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