Medicare Inflation Rebates Show Limited Impact on Drug Price Trends

Medicare inflation rebates were not associated with smaller price increases among the top-selling drugs most affected by the policy, according to a study published today in Health Services Research.1

Drugmakers commonly raise brand-name drug prices annually, often outpacing inflation. From 2007 to 2017, list prices for brand-name drugs increased by a median of 9% per year.2 These increases contribute to higher out-of-pocket costs for patients, reflecting the growing gap between manufacturer list prices and postrebate net prices.

To help curb rising federal drug spending, the Inflation Reduction Act (IRA) of 2022 included a provision requiring manufacturers to pay Medicare rebates for price increases that exceed inflation.3 These rebates are projected to reduce federal spending by $63 billion from 2022 to 2031.4 However, it remains unclear whether this policy will effectively deter manufacturers from continuing to raise prices faster than inflation.1

Medicare inflation rebates fail to curb rising drug prices, highlighting the need for further policy action to control costs. | Image Credit: Alex Puhovoy - stock.adobe.com

To address this question, the researchers conducted a cross-sectional study examining whether drugs with a higher share of Medicare sales saw smaller price increases after the IRA’s inflation rebates took effect in 2023. Using data from SSR Health, they identified the 200 drugs with the highest net sales in the US during the first quarter of 2023.

The researchers then used public FDA data to determine each drug’s approval date and type (biologic or small molecule). Also, they classified the drugs by therapeutic area using the World Health Organization’s Anatomical Therapeutic Chemical classification system.

Additionally, due to differences in rebate calculation methods, the researchers stratified the drugs based on whether Medicare Part B or Part D incurred the majority of spending in 2021; Part B inflation rebates are based on average sales prices, while Part D's are tied to average manufacturer prices.

The primary outcome was the absolute difference in year-over-year price changes before and after the rebates took effect. Drug prices were collected each January from 2021 to 2024. The researchers then calculated the absolute difference in price changes between the prepolicy period (2021-2022) and the first (2022-2023) and second (2023-2024) years after the rebates took effect.

After excluding ineligible drugs, the analysis included 156 (78%) of the top 200 drugs. The most common therapeutic categories were cancer (n = 40; 26%), immunologic (n = 25; 16%), and cardiovascular (n = 22; 14%). Of these drugs, 50 (32%) were primarily reimbursed under Part B and 106 under Part D (68%). Together, these drugs represented $234 billion in 2021 net sales, or 38% of the estimated $613 billion spent on prescription drugs that year.

In 2021, the 50 Part B drugs accounted for $22.0 billion in Part B spending, or 31.2% of their combined $70.5 billion US net sales. The median share of net sales due to Medicare Part B drugs was 27.9% (IQR, 18.2%-37.2%). Additionally, the 106 Part D drugs were responsible for $55.3 billion in net Medicare Part D spending, or 33.8% of their combined $163.5 billion net sales. The median share of net sales accounted for by Medicare Part D was 31.5% (IQR, 16.1%-49.3%).

During the prepolicy period, the median price change was 3.2% for Part B drugs (IQR, 1.3%-4.9%) and 5.0% for Part D drugs (IQR, 3.6%-6.1%). Inflation increased 7.5% during this time, with only 4 (8%) Part B drugs and 11 (10%) Part D drugs having price increases that exceeded the inflation rate.

In the first year after the rebates took effect, the median price change was 2.9% for Part B drugs (IQR, 1.4%-5.0%) and 5.9% for Part D drugs (IQR, 4.2%-7.1%), while inflation rose 6.4%. Price increases outpaced inflation for 11 (22%) Part B drugs and 36 (34%) Part D drugs.

In the second year, the median price change was 3.4% for the 49 Part B drugs (IQR, 0.7%-5.0%) and 4.9% for the 99 Part D drugs (IQR, 3.0%-5.9%). With inflation at 3.1%, 28 (57%) Part B drugs and 71 (72%) Part D drugs had price increases above the inflation rate.

Overall, there was no significant association between the Medicare share of net sales and price change differences for Part B drugs (2023, P = .99; 2024, P = .09). In contrast, among Part D drugs, each 10% increase in the Medicare share of net sales was linked to a 0.18% (95% CI, 0.01%-0.35%; P = .04) higher price increase in the first year, with no significant association in the second year (P = .17).

The researchers acknowledged their study’s limitations, including unmeasured factors, such as brand-to-brand competition, that may influence pricing decisions. Still, they expressed confidence in their findings and encouraged further policy action.

“To prevent excess spending by the health care system and patients due to annual price increases, additional policies may be needed, such as extending inflation rebates to the private insurance market or expanding federal price negotiations,” the authors concluded.

References

1. Egilman AC, Kesselheim AS, Rome BN. Share of sales subject to Medicare inflation rebates and price increases of top-selling drugs. Health Serv Res. Published online July 14, 2025. doi:10.1111/1475-6773.70012
2. Hernandez I, San-Juan-Rodriguez A, Good CB, Gellad WF. Changes in list prices, net prices, and discounts for branded drugs in the US, 2007-2018. JAMA. 2020;323(9):854-862. doi:10.1001/jama.2020.1012
3. Inserro A. CMS releases guidance on the math behind Part B, Part D drug rebates. AJMC®. February 9, 2023. Accessed July 14, 2025. https://www.ajmc.com/view/cms-releases-guidance-on-the-math-behind-part-b-part-d-drug-rebates
4. CBO scores IRA with $238 billion of deficit reduction. Committee for a Responsible Federal Budget. September 7, 2022. Accessed July 14, 2025. https://www.crfb.org/blogs/cbo-scores-ira-238-billion-deficit-reduction