As discussed in a previous CMA Alert (Aug. 18, 2022), President Biden signed into law the Inflation Reduction Act (IRA) of 2022 on August 16, 2022. This bill includes historic prescription drug provisions that are already providing significant benefits to Medicare beneficiaries. As noted in this CMA Alert (Jan. 19, 2023), while some provisions will be phased in over the next few years, critical provisions have already become effective in 2023. Yet this progress is already under threat.
Overview of IRA Prescription Drug Provisions
The following is a summary of the Medicare-related drug provisions in the IRA, to be phased in over the next several years. Note that the Part D changes also generally apply to Medicare Advantage plans that provide Part D prescription drug coverage, known as Medicare Advantage Prescription Drug (MA-PD) plans.
- Allows Medicare to negotiate with drug manufacturers for the price of some Part D and Part B drugs (negotiated prices effective in 2026);
- Caps beneficiary out-of-pocket Part D drugs costs at $2,000 per year (starting in 2025 – also allows spreading of costs over course of the year, aka “smoothing”); in 2024, the 5% coinsurance for Part D catastrophic coverage will be eliminated);
- Imposes checks on the annual rise in costs of drugs and Part D premiums (limitations on drug prices start in 2023, and limitations on Part D premiums start in 2024);
- Limits monthly out-of-pocket copays for insulin to $35 (starting in 2023);
- Eliminates cost-sharing for adult vaccines covered under Part D (2023); and
- Expands access to the Part D Low-Income Subsidy (“LIS or Extra Help”) (starting in 2024) – full LIS up to 150% of the Federal Poverty Level (FPL) with higher resource limits.
For more information, see this CMS Fact Sheet “The Inflation Reduction Act Lowers Health Care Costs for Millions of Americans” (Oct. 5, 2022), including a timeline and FAQ.
Changes in 2023
Insulin Copays Capped
Since January 1, 2023, copayments for covered insulin products in Part D have been capped at $35 per month (with no deductible). Starting July 1, 2023, insulin furnished through durable medical equipment under Medicare Part B (such as insulin pumps) will be subject to the $35 per month cap (note that the Part B deductible will apply before then). Note that Part D plans do not have to cover all insulin products at this copay level, only those insulin products that are on the plan’s formulary.
CMS has released both a Fact Sheet and an FAQ about the insulin provisions titled: Frequently Asked Questions about Medicare Insulin Cost-Sharing Changes in the Prescription Drug Law (Updated January 2023). Among other things, this FAQ discusses:
- Medicare Plan Finder issues concerning insulin copays;
- A Special Enrollment Period (SEP) for Exceptional Circumstances for individuals “who use insulin who experience any issues or concerns” through the end of 2023; and
- Requirements for obtaining a reimbursement if an individual paid more than $35 for a month’s supply of Part D covered insulin between January 1, 2023 and March 31, 2023.
No Cost-sharing for Vaccines Covered under Part D
Effective January 1, 2023, cost-sharing for vaccines covered under Part D are eliminated (even if an individual hasn’t met the Part D deductible). This applies to adult vaccines recommended by the Advisory Committee on Immunization Practices (ACIP), including the shingles and Tetanus-Diphtheria-Whooping Cough vaccines.
Other Drug Cost Changes
Behind the scenes, other provisions of the IRA have become effective in 2023, including checks on the annual rise in costs of drugs. Under this provision, drug companies will be required to pay rebates to the Medicare program if prices rise faster than inflation.
On February 9, 2023, CMS issued initial guidance on how it will implement the drug inflation rebate program for Part B and D drugs, as described in this press release. CMS is seeking comment by March 11. In October 2022, the annual period for CMS to measure price increases of Part D drugs began; the period for measuring Part B drugs began in January 2023. For additional information:
- View a fact sheet on the Medicare Prescription Drug Inflation Rebate Program guidance.
- Read the Medicare Part B Prescription Drug Inflation Rebate guidance.
- Read the Medicare Part D Prescription Drug Inflation Rebate guidance.
According to Bloomberg Law (Feb. 9, 2023), “CMS estimates that starting April 1, people with Medicare may see lower out-of-pocket costs for certain Part B drugs and biologics with price increases higher than the rate of inflation. The beneficiary coinsurance for these drugs and biologics will be 20% of the inflation-adjusted payment amount, according to the CMS.”
As highlighted in this previous CMA Alert (Jan. 19, 2023), a recent New York Times article titled “Medicare Begins to Rein In Drug Costs for Older Americans” by Paula Span (Jan. 14, 2023) (which quotes the Center for Medicare Advocacy) noted that “the Congressional Budget Office has estimated that this provision will save Medicare more than $56 billion over 10 years.”
As outlined in a CMS press release (Jan. 11, 2023), if this provision “had been in place from July 2021 to July 2022, more than 1,200 prescription drugs potentially would have been subject to the new provision requiring drug manufacturers to pay rebates to Medicare if they enact price increases that exceed inflation. Price increases on those drugs in the month the price change took effect averaged more than 30%.”
Similarly, as recently highlighted in an update issued by the Campaign for Sustainable Rx Pricing titled “ICYMI: Study Finds Medicare Part B Would Have Saved $3.7 Billion Over Three Years if Big Pharma’s Price Hikes Were Below the Rate of Inflation” an analysis published in the Journal of the American Medical Association (JAMA) found that “the Medicare Part B program would have saved $3.7 billion on prescription drug spending between 2018 and 2020” had this provision been in place during that time frame.
Drug Price Negotiation
On January 11, 2023, CMS issued a memorandum titled “Medicare Drug Price Negotiation Program: Next Steps in Implementation for Initial Price Applicability Year 2026” – also see accompanying press release. As noted in the press release, “For the first time in history, because of the Inflation Reduction Act, Medicare will have the ability to negotiate prescription drug prices. That process begins in 2023, and the first negotiated prices will go into effect in 2026.” The memorandum outlines implementation steps, timelines, and public comment opportunities relating to the Medicare Drug Price Negotiation Program. A full timeline of the Drug Price Negotiation Program implementation process is available here: https://www.cms.gov/files/document/drug-price-negotiation-timeline-2026.pdf. As outlined in the press release:
Key dates for implementation include:
- By September 1, 2023, CMS will publish the first 10 Medicare Part D drugs selected for the Medicare Drug Price Negotiation Program.
- The negotiated maximum fair prices for these drugs will be announced by September 1, 2024 and prices will be in effect starting January 1, 2026.
- In future years, CMS will select for negotiation 15 more Part D drugs for 2027, 15 more Part B or Part D drugs for 2028, and 20 more Part B or Part D drugs for each year after that, as outlined in the Inflation Reduction Act.
Coming Soon: Out-of-Pocket Caps
In approximately 10 months from now (starting in 2024), the Part D 5% coinsurance above the catastrophic level will be eliminated, effectively capping out-of-pocket costs, and the following year this cap will be lowered to $2,000.
Progress Already Under Threat
As discussed in another CMA Alert about the insurance industry falsely framing CMS’ efforts to rein in Medicare Advantage overpayments as a “cut” to Medicare, some policymakers are similarly (and falsely) characterizing the significant savings on drug costs that will result from the IRA as “cuts.”
A Huffington Post article titled “Republicans Try An Elementary School Defense On Medicare” by Jonathan Cohn (Feb. 17, 2023) describes this dynamic:
The GOP argument, which many conservative intellectuals embrace, is that any reduction in what the federal government sends to Medicare represents a “cut.” And so potentially reducing payments to Medicare Advantage or, say, using government negotiating power to reduce what Medicare pays drug companies, is fundamentally the same as raising the eligibility age (as the Republican Study Committee floated) or requiring that the program obtain new congressional authorization every five years (as Scott suggested).
But there’s a difference in the two approaches. What the Democrats are proposing represents an effort to manage the program differently, not change its fundamental commitment to seniors and people with disabilities. “I don’t think these are equivalent changes at all,” [Richard] Kronick [an economist at the University of California, San Diego] said.
Not only are some policymakers characterizing savings to the Medicare program (which they generally call for) as “cuts,” there are already legislative efforts to undermine or even repeal the Medicare drug provisions of the Inflation Reduction Act.
As noted in a White House “FACT SHEET: The Congressional Republican Agenda to Increase the Debt by Over $3 Trillion” (Feb. 15, 2023) “Congressional Republicans proposed repealing—and are even running ads attacking—reforms President Biden signed to lower prescription drug costs. Repealing these policies would increase the amount of money Medicare pays Big Pharma, raise costs for seniors, and add $159 billion to the debt.” The Fact Sheet goes on to state:
Increase Spending With a Handout to Big Pharma: House Republicans have introduced a bill to repeal the entire Inflation Reduction Act (IRA), including the reforms President Biden signed into law to lower prescription drug costs. Congressional Republicans and Big Pharma have launched a concerted attack on the IRA’s prescription drug reforms, advocating to increase both Federal spending and seniors’ costs to increase Big Pharma’s profits. Thanks to the new prescription drug law, Medicare will finally be able to negotiate drug prices, and drug companies will pay rebates to Medicare if they try to hike their prices faster than the rate of inflation. Congressional Republicans want to repeal these policies, giving a $159 billion handout to Big Pharma, raising costs for seniors, and driving up the Federal debt.
The Center for Medicare Advocacy urges the Administration to continue its efforts to implement these critical drug provisions. We further urge Congress to support these efforts and, even better, further strengthen the IRA’s drug provisions to achieve even more savings for not only Medicare beneficiaries, but for everyone.
March 2, 2023 – D. Lipschutz