We previously summarized the inflation rebate provisions of the IRA in alerts here and here, and summarize the key provisions of the Part B inflation rebate guidance and Part D inflation rebate guidance below.

Medicare Part B Inflation Rebates

Part B Rebatable Drugs

Consistent with the statute, drugs subject to the Part B inflation rebate are single source drugs or biologicals (as that term is defined by statute), excluding qualifying biosimilar biological products, paid under Part B, excluding certain vaccines and low Medicare spend drugs.  CMS will identify these drugs by their Healthcare Common Procedure Coding System (HCPCS) codes.  To support such identification, CMS will exclude drugs that are billed using a HCPCS code that represents an “unclassified,” “unspecified,” or “not otherwise classified” drug or biological.  In the guidance, CMS indicates that HCPCS codes that describe skin substitute products will not be considered Part B rebatable drugs for a calendar quarter during 2023.

Beneficiary Coinsurance Amount

Consistent with the statute, beginning April 1, 2023, beneficiaries will pay 20% of the inflation-adjusted Part B payment amount for a drug subject to a Part B inflation rebate, instead of the published Part B payment amount.  The applicable beneficiary coinsurance percentage for each HCPCS code of a drug subject to a Part B inflation rebate will be available on the CMS website in advance of the applicable quarter as part of the quarterly pricing files.  The amount of Part B payment to a provider or supplier for a drug subject to a Part B inflation rebate will be increased by the difference between the adjusted beneficiary coinsurance and the unadjusted beneficiary coinsurance, thereby making the provider or supplier whole.

Estimated Part B Inflation Rebate Amount

Consistent with the statute, CMS will calculate the “estimated” rebate amount as:

• the total number of Part B units (and Medicare Advantage (MA) units as discussed below) of the HCPCS code of the drug in the rebate quarter, excluding 340B units and packaged units, by reference to Medicare fee-for-service claims data for separately payable drugs;
• multiplied by the amount (if any) by which the rebate quarter Part B payment rate exceeds the inflation-adjusted benchmark quarter Part B payment rate.   

CMS notes the following with respect to this calculation:

• Exclusion of 340B units.  CMS will identify 340B units for exclusion by requiring providers and suppliers to use a JG or TB 340B modifier on their Part B claims (and, for 2023, excluding all units of the subset of 340B covered entities that are not required to do so until January 1, 2024). 
• Exclusion of dual eligible beneficiary units.  CMS will exclude units of drugs furnished to beneficiaries eligible for both Medicare and Medicaid from the rebate calculation. 
• Inclusion of MA units.  CMS indicates that units on which Part B inflation rebates may be invoiced may include units furnished to beneficiaries enrolled in MA plans, and seeks comment on how to quantify those units furnished to MA enrollees in the first instance, as well as how to remove from that universe those units, such as 340B and dual-eligible units, excluded from rebate liability by statute.
• Identification of payment amount benchmark quarter for subsequently approved drugs.  For Part B rebatable drugs first approved or licensed after December 1, 2020, the payment amount benchmark quarter is the third full calendar quarter after the day on which the drug was first marketed. CMS will use the date of first sale as reported by CMS in average sales price (ASP) data to determine the first marketed date.  
• Shortages and severe supply chain disruptions.  CMS is seeking comment on how to reduce or waive the rebate amount for products on the 506E shortage list and for biosimilars experiencing severe supply chain disruptions.

Ensuring the Integrity of Part B Inflation Rebates

By statute, CMS is required to send a Rebate Report to a manufacturer for the amount of a Part B inflation rebate due.  CMS proposes to issue the Report as follows:

• Step One.  No later than five months after the end of the rebate quarter, the manufacturer will receive a Preliminary Rebate Report, which will include the total number of units subject to the rebate, the amount by which the ASP exceeded the pace of inflation, and the rebate amount due for the applicable rebate quarter.  
• Step Two.  The manufacturer will have ten days after receiving the Preliminary Rebate Report to identify calculation errors to CMS, which has discretion to consider such identified errors.  
• Step Three.  The manufacturer will receive the final Rebate Report no later than six months after the end of the rebate quarter.
• Step Four.  The manufacturer will have 30 days from receipt of the final Rebate Report to pay the rebate amount due.  
• Step Five.  Approximately one year later, CMS will conduct a one-time true-up recalculation to account for updated ASP data submitted by the manufacturer, CMS revision of payment limits, revisions to the CPI-U, and any updates to the claims data, and will reconcile any underpayment or overpayment.  The manufacturer will have an opportunity to review and comment on a Preliminary True-Up Rebate Report through a process comparable to that applicable to the Preliminary Rebate Report.

CMS notes that it may revise the rebate amount or true-up amount due to a calculation error or misreported data at any point after the rebate quarter ends.  CMS intends to issue additional guidance on Rebate Reports.

Civil Monetary Penalties (CMPs) for Non-Payment of Rebates

Consistent with the statute, the guidance provides that a manufacturer that fails to pay a rebate within 30 calendar days of receiving an invoice will be subject to a CMP of at least 125 percent of the rebate amount.  CMS intends to establish by regulation a process to impose such CMPs.  

Medicare Part D Inflation Rebates

Part D Rebatable Drug

Consistent with the statute, Part D rebatable drugs are all products approved under a New Drug Application or licensed under a Biologics License Application (including biosimilars), as well as certain generics that “feel like” an innovator, excluding low Medicare spend drugs.

Not all drugs that qualify as a Part D rebatable drug are associated with a Medicaid Drug Rebate Program (MDRP) agreement requiring the manufacturer to report the average manufacturer price (AMP) on which the Part D inflation rebate is based.  CMS is not able to assess rebates on such drugs at this time, but is working on determining how to collect the data necessary to do so.

Special Considerations in Calculating the Part D Inflation Rebate Amount

Consistent with the statute, the Part D inflation rebate will be calculated as:

• the total number of Part D units of the drug in the rebate year (excluding 340B units beginning in 2026);
• multiplied by the amount (if any) by which the annual manufacturer price (AnMP) for the rebate year exceeds the inflation-adjusted benchmark period manufacturer price. 

The AnMP will be calculated by multiplying each quarterly AMP for the drug in the applicable period by the ratio of the number of AMP-reported units for the quarter to the number of AMP-reported units for the year and adding the results for all quarters in the applicable period.  The benchmark year manufacturer price will be calculated in the same way as the AnMP, but for products approved or licensed on or before October 1, 2021, the period is three quarters rather than four.  The benchmark period manufacturer price will be adjusted for inflation by the percentage (if any) by which the benchmark period CPI-U is exceeded by the CPI-U for the first month of the rebate year.

CMS notes the following with respect to this calculation:

• Unit type.  Because the unit type reported with respect to Part D prescription drug event (PDE) units and with respect to AMP under the MDRP may be distinct, CMS “intends to compare the Part D rebatable drug units reported in the PDE record to the units reported . . . for the monthly AMP” and convert units as needed.
• Excluding 340B units.  CMS seeks comment on whether “requiring that a 340B indicator be included on the PDE record is the most reliable way to identify drugs that are subject to a 340B discount that were dispensed under Medicare Part D.”
• Identification of payment amount benchmark period for subsequently approved drugs.  For Part D rebatable drugs first approved or licensed after October 1, 2021, the benchmark period manufacturer price is calculated using the first calendar year after the drug is first marketed.  To determine when a drug was first marketed, CMS “intends to use the market date that the manufacturer is required to report under . . . [the MDRP].”
• Shortened first applicable period for subsequently approved drugs.  The applicable period for Part D inflation rebates typically is a four quarter period beginning with the fourth quarter of the calendar year through the third quarter of the next calendar year. For subsequently approved drugs, the first applicable period will be truncated to the first three quarters of the first calendar year that begins immediately after the payment amount benchmark period ends. After the first applicable period, the regular applicable four quarter applicable period will apply.
• Use of reasonable assumptions where there are no sales of a subsequently approved drug during some/all of payment amount benchmark period.  The guidance addresses the possibility of there being no sales of a subsequently approved drug for the entire payment amount benchmark period.  CMS directs the manufacturer to use reasonable assumptions for the reported price in such circumstances and states the benchmark period manufacturer price will be calculated as an average of such reported price(s).  If there are sales reported for some of the calendar quarters in the benchmark period, only the price(s) quarters for which sales and units are reported will be used to calculated the benchmark period manufacturer price.
• Shortages and severe supply chain disruptions.  As with the Part B inflation rebate, CMS is seeking comment with respect to how to reduce or waive the Part D rebate amount or products on the 506E shortage list and for biosimilars experiencing severe supply chain disruptions.

CMS will calculate the Part D inflation rebate amount for line extensions as follows:

• First, CMS will “identify line extensions based on manufacturer reporting of drugs as line extensions and related pricing and product data” under the MDRP.
• Second, CMS will determine the greater of “(1) the inflation rebate amount for the applicable period . . . for the Part D rebatable line extension drug; or, (2) the alternative inflation rebate amount calculated under the alternative rebate formula” for such drug. 
  • The alternative rebate formula will divide the inflation rebate amount for the initial drug identified by the manufacturer for MDRP purposes for the last quarter of the applicable period, by the AnMP for that initial drug.
  • The resulting ratio will then be multiplied by the AnMP for the line extension for the applicable period to determine the alternative inflation rebate amount in step (2).
• Third, the greater of the amounts in (1) and (2) will be multiplied by the total units of the drug.

Ensuring the Integrity of the Part D Drug Inflation Rebate Payments

By statute, CMS is required to send a Rebate Report and invoice to a manufacturer for the amount of a Part D inflation rebate due.  CMS proposes to issue the Report and invoice as follows:

• Step One.  No later than six months after the end of the rebate period, the manufacturer will receive a Preliminary Rebate Report, which will include the total number of units subject to a rebate (reporting on such utilization is not required by statute), the NDC of the drug, the rebate amount due, and the amount by which the AnMP exceeds the pace of inflation for the applicable period. 
• Step Two.  The manufacturer will have ten days after receiving the Preliminary Rebate Report to identify calculation errors to CMS, which has discretion to consider such identified errors. 
• Step Three.  The manufacturer will receive the final Rebate Report no later than nine months after the end of the rebate year.
• Step Four.  The manufacturer will have 30 days from receipt of the final Rebate Report to pay the rebate amount owed. 
• Step Five.  Approximately one year after the final Rebate Report is sent, CMS will conduct a one-time true-up recalculation to account for updated data, including updates from plan sponsors on Part D units dispensed, and will reconcile any underpayment or overpayment.  The manufacturer will have an opportunity to review and comment on  the Preliminary True-Up Rebate Report through a process comparable to that applicable to the Preliminary Rebate Report.

CMS notes that it may revise the rebate amount or true-up amount based on any calculation error or misreporting of manufacturer pricing or product data at any point after the rebate year ends.  This process will be separate and distinct from the Preliminary Rebate Report and Preliminary True-Up Report processes.  CMS intends to issue additional guidance on Rebate Reports and the process for reconciling underpayments and overpayments.

CMPs for Non-Payment of Rebates

Consistent with the statute, a manufacturer that fails to pay an inflation rebate will be subject to a CMP equal to 125 percent of the rebate amount.  CMS proposes to give notice to the manufacturer of the imposition of the CMP.  The manufacturer will have 60 days from receipt of the notice to request a hearing or pay the penalty.  An unpaid penalty will be deducted from amounts owed by the United States to the manufacturer.

We recommend that you carefully review the initial guidance to identify all issues relevant to your organization and areas on which you may wish to comment.

Authored by Alice Valder Curran, Beth Roberts, Beth Halpern, Ken Choe, Stuart Langbein, Kathleen Peterson, James Huang, Samantha Marshall, Mahmud Brifkani, Abdie Santiago, Katie Kramer, and Rianna Modi.