Policy Reforms
The Inflation Reduction Act Initiates Insulin Price Reductions
The Inflation Reduction Act (IRA) was signed into law in August 2022. Included in this sweeping legislation was a stipulation capping monthly insulin costs for Medicare Part D beneficiaries at $35/month, effective January 2023. In response to this, revised rebate policies, and continued public pressure, several insulin manufacturers opted to lower their list price of select insulins (see Current and Anticipated Insulin Price Reductions).
Rebate Policies Revisited
Historically, the Unit Rebate Amount (URA), or amount of Medicaid rebates that a drug manufacturer might pay per unit of drug sold, was capped at that drug’s quarterly Average Manufacturer’s Price (AMP). Therefore, a manufacturer could generally not owe more in Medicaid rebates than what they were selling a drug for. The American Rescue Plan Act, signed into law in March of 2021, included a provision eliminating this cap on the total Medicaid Unit Rebate Amount (the base Unit
Rebate Amount plus Inflationary Penalty). Effective January 1, 2024, the total Medicaid Unit Rebate Amount for a drug may exceed the quarterly AMP. For manufacturers of drugs and biologics, like insulins, that have demonstrated price increases that outpace inflation year-over-year, this regulatory shift poses significant financial implications.
This concept of an inflation-based rebate penalty was also adopted into the Inflation Reduction Act and applied to Medicare (effective 2022, with rebate payments required beginning 2023) as a mechanism to limit price increases for prescription drugs used by Medicare beneficiaries. Similar to the Medicaid policy, drug manufacturers must pay a rebate to Medicare when the price for a single-source drug/biologic under Part B, or nearly any drug under Part D, increases faster than the rate of inflation (as measured by the consumer price index [CPI-U].
The rebate amount is equal to the total number of units sold in Medicare multiplied by the difference in the drug’s list price in the target year versus its inflation-adjusted price.