On Aug. 12, the Inflation Reduction Act of 2022 (IRA) passed the U.S. House by a vote of 220-207, and President Biden is expected to sign it into law today. First passed by the U.S. Senate on Aug. 7, the $740 billion budget reconciliation package includes policies on Medicare drug pricing, Affordable Care Act (ACA) subsidies, energy, climate, and taxes. This update provides high-level details on the notable health care-related provisions in the IRA.

Allowing Medicare to Negotiate Drug Prices

With the goal of improving affordability for high-priced drugs in Medicare Parts B and D, the IRA directs the Department of Health and Human Services (HHS) to establish a drug price negotiation program for certain high-priced, single-source drugs and biological products. Under this program, the HHS Secretary will publish a list of selected drugs that meet certain criteria, then negotiate (and renegotiate as needed) maximum fair prices with manufacturers of those drugs. Drugs eligible for negotiation include the 50 Part B and 50 Part D single-source drugs with the highest total expenditures during the most recent 12-month period; however, negotiation is limited to Part D drugs for 2026 and 2027. Negotiated prices must take effect for 10 eligible drugs in 2026, increasing to 20 drugs in 2029. For 2026, the expenditure period to be reviewed is June 1, 2022 through May 31, 2023, and the selected drug list publication date will be Sept. 1, 2023.

Redesigning the Medicare Part D Program, Including Capping Annual Out-of-Pocket Costs for Beneficiaries

The IRA significantly reforms the Medicare Part D benefit design, including capping maximum out-of-pocket (OOP) costs at $2,000 annually, with a copay smoothing component; capping annual premium growth at 6%; and expanding eligibility in the Low-Income Subsidy (LIS) program.

• Beneficiary Cost-Sharing Changes:
– Beginning in 2024, beneficiaries will be responsible for $0 in the catastrophic benefit phase. There are no changes to the initial coverage phase or coverage gap phase.
– Beginning in 2025, the coverage gap phase will be eliminated, and a new $2,000 OOP cap will be applicable with the option to spread OOP payments out over the course of the year. The initial coverage phase remains unchanged.
• Part D Benefit Design: The bill restructures plan, manufacturer, and federal government liabilities for the different benefit phases beginning in 2025:

• Premium Stabilization: For 2024 through 2029, any increase in the Part D base beneficiary premium is limited to the lesser of a 6% increase from the previous year or the premium that would have been applied if the stabilization program was not established. In 2030 and subsequent years, the HHS Secretary is authorized to make adjustments necessary to the base Part D premium to ensure that premium is increased by the lesser of 6% or what the premium would have been if the stabilization program was not established.
• Expanded LIS Eligibility: The bill expands eligibility for the Part D LIS program from 135% of the federal poverty level to 150% beginning in 2024.

Capping Insulin Cost-Sharing in Medicare

For 2023 through 2025, the bill caps beneficiary cost-sharing at $35 a month for Medicare Part D or Medicare Advantage Prescription Drug Plan (MA-PD) covered insulin products. In 2026 and beyond, it caps cost-sharing at the lesser of $35 or 25% of the maximum fair price or 25% of the plan’s negotiated price. The cost-sharing is capped regardless of where the beneficiary is in the benefit phase, and Part D and MA-PD plans are eligible for a retroactive subsidy in 2023 equal to the aggregate reduction in cost-sharing and deductible due to implementing this provision.

Implementing Drug Manufacturer Inflationary Rebates in Medicare

The legislation requires drug manufacturers to pay rebates to the government if drug prices in Medicare Part B and Part D rise faster than inflation, with rebates equaling the rate at which the price of the drug exceeds inflation. This rebate provision goes into effect Jan. 1, 2023 for Part B rebatable drugs and Oct. 1, 2022 for Part D rebatable drugs. Drugs with an average cost of less than $100 are excluded. Additionally, HHS is instructed to reduce or waive the rebate amount for a Part D rebatable drug if it is on the drug shortage list, per the Federal Food, Drug, and Cosmetic Act.

Requiring Vaccine Coverage in Medicare Part D

Beginning in 2023, Part D plans are required to cover all adult vaccines recommended by the Advisory Committee on Immunization Practices, without cost-sharing or the application of a deductible (other than vaccines covered under Part B). Part D and MA-PD plans are eligible for a retroactive subsidy in 2023 equal to the aggregate reduction in cost-sharing and deductible due to implementing this provision.

Extended Delay of the Medicare Part D Rebate Rule

The legislation includes an additional five-year delay of the implementation of a rule that would prohibit manufacturer rebates in Part D, to Jan. 1, 2032.

Extending Enhanced ACA Subsidies Through 2025

Originally set to expire at the end of this year, the IRA extends the enhanced American Rescue Plan Act (ARPA) ACA premium tax credit subsidies through 2025.

 

On Nov. 20, 2020, the U.S. Department of Health and Human Services (HHS) issued two new drug pricing rules that follow through on Executive Orders (EOs) signed by President Trump this summer. The HHS Office of Inspector General (OIG) released a prepublication version of a final rule that bans drug rebates in Medicare Part D that are not passed on to patients at the point of sale (POS). Additionally, the Centers for Medicare & Medicaid Services (CMS) released a prepublication version of an interim final rule to lower what Medicare Part B pays for certain drugs based on what other countries pay by establishing a mandatory nationwide demonstration to test a new “most favored nation” (MFN) payment model.

Drug Rebate Rule

Effective Jan. 1, 2022, the drug rebate rule removes Anti-Kickback Statute safe harbor protections for rebates manufacturers negotiate with Medicare Part D plans that are not applied at the POS. A new safe harbor protection will become effective 60 days after publication of the rule to permit plans, pharmacies, and pharmacy benefit managers (PBMs) to apply rebate discounts at the POS to lower patients’ out-of-pocket (OOP) costs. A second new safe harbor, also effective 60 days after publication, will protect flat service fee arrangements that Part D plan sponsors establish with PBMs.

Initially proposed in Feb. 2019, the rule was withdrawn from further regulatory action a few months later in recognition of the negative impact on both Medicare beneficiaries and taxpayers. It was estimated the proposed rule would increase Part D premiums by approximately 25-40%. The Congressional Budget Office and CMS Office of the Chief Actuary further estimated it would result in a significant increase in federal spending over ten years ($177 billion and $196 billion, respectively), making it one of the most expensive proposed regulations in U.S. history. On July 24, 2020, President Trump signed an EO that directed HHS to complete its prior rulemaking process. The EO also included a requirement that the HHS Secretary publicly confirm that the action will not increase federal spending, Medicare beneficiary premiums, or patients’ total OOP costs prior to finalizing any rule. In tandem with the final rule’s release, Secretary Azar issued a letter asserting confirmation in which he relied on his personal experience to project that those costs would not increase.

Most Favored Nation Rule

CMS released an interim final rule (IFR) to implement an MFN Model to test whether more closely aligning payment for Medicare Part B drugs with international prices can better control Medicare Part B spending without adversely affecting the quality of care for Medicare fee-for-service (FFS) beneficiaries. Beginning Jan. 1, 2021, the MFN Model will initially link 50 single-source drugs and biologicals to a price calculated from the lowest price among Organisation for Economic Co-operation and Development (OECD) members that have a per-capita Gross Domestic Product (GDP) similar to the US. To cover administration costs, providers will be paid a flat “add on” per dose fee, which will be the same for each MFN Model drug. Paying a flat fee rather than a percentage of each drug’s cost, which Part B currently does, is expected to reduce the financial incentive for providers to administer higher-cost drugs.

Participation in the MFN Model is mandatory and will include all providers and suppliers nationwide that receive separate Medicare Part B FFS payment for an MFN Model drug, with limited exceptions. The model will have a seven-year demonstration period beginning Jan. 1, 2021.

FDA Unapproved Drugs Initiative Cancelled

In addition to the two new rules, HHS released a notice [PDF] to terminate the U.S. Food and Drug Administration (FDA) Unapproved Drugs Initiative. The original intent of the program was to reduce the amount of unapproved drugs on the market by requiring manufacturers to remove those drugs from the market or obtain FDA approval by demonstrating evidence of safety and efficacy. However, the program provided manufacturers a “period of de facto market exclusivity,” which allowed them an opportunity to raise prices in an environment largely insulated from market competition. The initiative has also been linked to drug shortages. HHS concluded that the initiative’s termination will have a positive impact on public health because the program limited patient access due to price increases or drug shortages.