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![handle is hein.crs/goveirk0001 and id is 1 raw text is: Congressional Research Servic
Informing the legisiative debate since 1914
September 1, 2022
Selected Health Provisions of the Inflation Reduction Act
Overview
On August 16, 2022, President Biden signed into law P.L.
117-169, a budget reconciliation measure known as the
Inflation Reduction Act (the Act). The Act makes wide-
reaching changes to Medicare prescription drug coverage
and more targeted changes to Medicaid, the State
Children's Health Insurance Coverage Program (CHIP),
and private health insurance.
The Act requires the Secretary of Health and Human
Services (Secretary) to negotiate prices for certain drugs
covered under Medicare Part B (physician-administered
drugs) and Part D (retail prescription drugs), starting with
10 high-spending, single-source drugs for 2026 and
increasing to 20 by 2029. Effective in 2023, manufacturers
that sell drugs through Parts B and D must pay rebates to
Medicare if they increase drug prices faster than consumer
inflation. Also in 2023, the Act eliminates enrollee cost
sharing for certain vaccines in Part D and sets a $35 cap on
enrollee cost sharing for insulin in Parts D and B.
Effective in 2025, the Part D benefit is reconfigured to
include an annual $2,000 out-of-pocket (OOP) spending
cap, expanded subsidies for low-income enrollees, and
limits on annual premium increases, among other changes.
The Act extends through 2025 more generous premium
subsidies for health plans sold on exchanges, which were
originally approved in the American Rescue Plan Act
(ARPA; P.L. 117-2). Following are the main provisions.
Medicare Prescription Drug Price Negotiation
The Act establishes a Drug Price Negotiation Program (the
Program) for certain single-source chemical drugs and
biological products covered under Medicare Part B and Part
D. The Secretary is required to negotiate Maximum Fair
Prices (MFPs) with drug manufacturers for 10 qualifying
drugs for 2026, 15 drugs for each of 2027 and 2028, and 20
drugs for 2029 and each following year. (In 2026 and 2027,
the Program applies only to Part D.)
The initial negotiations begin in 2023 when the Secretary
publishes a list of selected drugs and culminate in 2026
when the first round of MFPs takes effect. (Each following
year, the negotiation process begins about two years prior to
the date new MFPs take effect.) Each year, the Secretary
selects drugs for negotiation from a list of 50 qualifying
single-source drugs with the highest total spending in Part
B and 50 such drugs from Part D, excluding already
selected drugs. To be eligible for negotiation, a chemical
drug must have been Food and Drug Administration
(FDA)-approved for at least 7 years and a biological
product must have been licensed for at least 11 years. To be
eligible for negotiation, a qualifying drug cannot have a
generic or biosimilar substitute. The Program focuses on
single-source drugs with limited market competition.
During negotiations with manufacturers, the Secretary must
consider factors including the drug's cost of production;
research and development expenditures, including federal
support; and alternative treatments. The Act imposes an
MFP ceiling for a drug based on the lesser of (1) the price
of the drug or biological paid under Part B or D or (2) a
percentage of the nonfederal average manufacturer price,
which is used to help calculate a maximum price for drugs
bought by the big four federal purchasers: the Department
of Veterans Affairs, the Department of Defense, the Public
Health Service, and the Coast Guard. The ceiling varies
based on the type of drug or biological and the amount of
time the product has been marketed. There is a temporary
price floor for drugs of small biotechnology firms.
A negotiated MFP would generally be in effect until the
first year beginning at least nine months after the date the
Secretary determines there is a marketed generic or
biological substitute for a drug. The Secretary may delay
negotiating an MFP for certain biological products for up to
two years if a pending biosimilar that uses the biological as
a reference product may come to market in that period.
Drug manufacturers that do not comply with the Program
could be subject to a civil monetary penalty or an excise
tax. The excise tax amount on the sale of a selected drug
would be set as a percentage of the sum of the drug's sales
price plus the excise tax imposed by the Act. This
percentage could range from 65% to a maximum of 95%, if
a manufacturer were out of compliance more than 270 days.
Medicare Parts B and D Drug Inflation Rebates
The Act requires drug manufacturers to pay annual rebates
to Medicare if they increase prices of certain Part D-
covered drugs above an allowable inflation rate from a
2021 base period (based on the Consumer Price Index, all
urban consumers [CPI-U]). The program applies in the12-
month period starting on October 1, 2022, and each
subsequent 12-month period. Likewise, beginning in 2023,
manufacturers pay a quarterly rebate to Medicare if the
prices of most single-source Part B drugs and biological
products exceed a quarterly inflation-adjusted price, also
based on CPI-U from a 2021 base.
Medicare Part D Program Changes
Part D is a voluntary prescription drug benefit for Medicare
beneficiaries, with plans offered by private insurers. Under
the Part D standard benefit specified in current law (see
Figure 1), enrollees pay 100% of drug costs in the
deductible, average 25% coinsurance from the deductible to
the catastrophic threshold, and a maximum 5% coinsurance
above the catastrophic threshold. Medicare covers a greater
share of costs for low-income enrollees through the Low
Income Subsidy (LIS), including capping OOP spending at](ViewImageLocal?handle=hein.crs/goveirk0001&div=1&collection=&method=preview&ext=.png&size=3)