Background

The Inflation Reduction Act (IRA) requires manufacturers to pay rebates to the federal government when price growth for certain rebatable drugs covered under Medicare Parts B and D exceeds the rate of inflation. For Part B rebatable drugs, the calculation is based on the manufacturers’ average sales price (ASP), a market-based net price metric used to set Medicare Part B reimbursement for provider-administered therapies. If ASP growth exceeds the inflation rate, manufacturers must pay the difference in the form of a quarterly rebate to Medicare. Additionally, fee-for-service (FFS) beneficiary coinsurance is lowered accordingly.

Avalere conducted an analysis to evaluate the share of Part B FFS beneficiaries who are most likely to benefit from the reduced out-of-pocket (OOP) costs stemming from the IRA inflation rebate provisions.

Supplementary Coverage in Part B

For Part B-covered drugs and service, beneficiaries in FFS Medicare have a 20% coinsurance after their deductible is met. However, many FFS-enrolled beneficiaries have various forms of supplemental coverage that assist with OOP costs (e.g., employer-sponsored supplemental insurance, Medigap, Medicaid). Avalere found that approximately 90% of Medicare FFS beneficiaries have some form of supplemental coverage that pays for some or most of their 20% coinsurance liability, and the estimated proportion of beneficiaries with supplemental coverage increased between 2020 and 2021, from 88.6% to 90%.

Impact of Inflation Rebates on OOP Costs in Part B

For Q3 2024, CMS identified 65 of approximately 845 Healthcare Common Procedure Coding System codes to apply adjusted coinsurance rate based on the inflation rebate amount. Using survey data from 2020 and 2021, Avalere found that fewer than 5% of all Medicare FFS beneficiaries used Part B drugs that were subject to inflation rebates in Q3 2024. Among the FFS beneficiaries using any of the Part B drugs subject to inflation rebates, the majority have some form of supplemental coverage, primarily through Medigap plans and employer-sponsored coverage. Avalere estimated that the proportion of these beneficiaries with no supplemental coverage was 3.7% in 2020 and 5.4% in 2021. Consequently, Avalere finds that among all FFS beneficiaries, between 0.1% and 0.2% would benefit from OOP cost savings from the inflation rebates applied to Part B rebatable drugs in Q3 2024.

What’s Next?

By September 30, CMS is expected to announce whether any Part B drugs will be subject to inflation rebates for Q4 2024.

Methodology

Avalere analyzed the 2020 and 2021 Medicare Current Beneficiary Survey (MCBS) data, including cost and utilization claims files, to estimate the proportion of FFS beneficiaries with supplemental coverage. Avalere then identified utilization of Part B drugs that incurred inflation rebates in Q4 2021 using the cost and utilization files. The MCBS data provides a representative sample of FFS beneficiaries and their claims. All results were weighted to reflect a national sample of FFS beneficiaries.

Learn More

To learn more about the impact of Medicare inflation rebates, as well as other IRA drug pricing provisions, connect with an Avalere expert today.

Funding for this research was provided by PhRMA; Avalere retained full editorial control.