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WASHINGTON -- By now you've likely heard about the new law allowing Medicare to negotiate the price of certain prescription drugs taken by its beneficiaries. But the Inflation Reduction Act (IRA) -- the legislation containing that negotiation provision -- also includes a few other important provisions related to prescription drugs.

Signed into law by President Biden on August 16, the IRA also:

• Requires drugmakers to pay rebates to Medicare if they increase list prices faster than the rate of inflation
• Implements an annual $2,000 out-of-pocket cap on prescription drug spending for Medicare beneficiaries with Part D drug plans
• Restricts insulin costs for Medicare enrollees to a maximum of $35 per month

The IRA "is really the most significant change we've seen since the enactment of the Medicaid drug rebate program in the early 1990s," said Ian Spatz, a senior advisor at Manatt Health, a professional services firm based in New York City, during a late August webinar on the legislation. "It's a large piece of legislation, and it's also a very complicated piece of legislation. And I think that the length and complication and also the long time it's taken and many versions of it to get to this point, have led to a lot of misinformation ... and a lot of confusion about how this law is likely to work."

"The cap on out-of-pocket spending, which begins to take effect in 2024, could be a really big deal for people on Medicare who take high-cost medications," said Tricia Neuman, executive director of the Program on Medicare Policy at the Kaiser Family Foundation. "Not only financially, because they won't be so out-of-pocket for the high cost of their medication, but they also may be more inclined to fill their prescriptions because they will know their liability."

The law also affects spending by the Medicare program, Neuman explained. Under the current program, once a beneficiary reaches their "catastrophic" drug spending limit of $7,050, Medicare itself picks up 80% of the cost, "so plans and drug companies had very little incentive to lower costs below the threshold, because Medicare was picking up the costs above that level," she said. But under the IRA, "once someone reaches the $2,000 cap, Medicare pays 20%, the [Part D and Medicare Advantage] plans pay 60%, and the drug companies pay 20%." The out-of-pocket cap will phase in starting in 2024, she noted.

The rebate provision, which becomes effective starting in 2023, is unique because it's the first time drug companies may end up paying rebates to the Medicare program specifically, noted Alex Dworkowitz, a partner at Manatt Health. Earlier versions of the bill also required the companies to pay rebates to commercial insurers as well, "so this was something that a lot of employer groups were in favor of because they were concerned about the potential ramifications of this law of pushing price increases to the commercial market." However, the provision requiring payments to commercial plans was removed at the very end by the Senate parliamentarian, so now it only applies to drugs paid for under Medicare parts B and D, he said.

The law also assesses fines against drugmakers who don't comply with the rebate provision, "so there are some teeth to this rule," Dworkowitz added. On the other hand, "it isn't clear what the process is if HHS makes a mistake in calculating what the rebates are."

Marsha Simon, PhD, an independent drug policy analyst, praised the rebate provision. "With all the yelling by the industry about the negotiation [provision], it's this inflation [rebate] penalty that's really going to have a significant hit on them," she said. "I like this particular policy because it's market-based." Simon added that several other federal drug-purchasing programs also include similar rebates.

She said she had paid close attention to the rebate provision "not only because it has been part of federal drug pricing legislation since the '90s, but I've also been told by people very close to drug pricing operations at the state level, in particular, that the inflation penalty for Medicaid, [the] 340B [program], and the VA accounts for the largest share of savings those programs enjoy, and prices have been reduced by about 50%."

On the $35 monthly cap on insulin costs for Medicare beneficiaries, which takes effect in 2023, Neuman said "this is an area where there could be significant savings for people." She noted that her organization in July that found that out-of-pocket costs for insulin among beneficiaries with Part D drug plans averaged $54 per month. Beneficiaries' total spending on insulin products quadrupled between 2007 to 2020, increasing from $236 million to $1.03 billion, the researchers found.

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