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Medicare Could Collect Billions If Pharmaceutical Manufacturers Were Required To Pay Rebates for Part B Drugs


Statutorily mandated rebates enabled Medicaid to recoup a substantial percentage of the $28 billion spent on prescription drugs in 2011. That same year, Medicare Part B expenditures exceeded $16 billion on prescription drugs; however, no similar rebate authority exists for Part B to reduce the costs of drugs to the program. In response to a congressional request, OIG estimated in 2011 that if pharmaceutical manufacturers had been required to pay rebates similar to those under Medicaid for 20 high-expenditure Part B brand-name drugs, Medicare could have collected up to $2.4 billion in rebates, representing as much as 26 percent of expenditures for those drugs in 2010. Whereas our original analysis was limited to 20 brand-name drugs, this current study provides a more thorough examination of the potential collections associated with Part B rebates, as well as implementation issues.


For each of the 60 Healthcare Common Procedure Coding System codes that represented 85 percent ($13.9 billion) of total 2011 Part B drug expenditures, we calculated how much manufacturers would have owed in rebates based on average manufacturer prices (AMP-based rebates) and average sales prices (ASP-based rebates). We reviewed previous OIG work and documented the methodological challenges we encountered in this study to identify issues that would need to be addressed before implementing a rebate program under Medicare Part B.


Medicare could have collected $3.1 billion if pharmaceutical manufacturers had been required in 2011 to pay AMP-based rebates for 60 high-expenditure Part B drugs, representing 22 percent of spending for those drugs. Requiring manufacturers to pay ASP-based rebates for the same 60 drugs could have garnered Medicare $2.7 billion in rebate payments, representing 20 percent of spending. However, several implementation issues related to claims and data would need to be addressed if such a rebate program were implemented.


We recommend that the CMS examine the additional potential impacts of establishing a prescription drug rebate program under Medicare Part B and, if appropriate, seek legislative change. As part of its consideration, CMS should address administrative issues that may hinder rebate collections. CMS did not concur with our recommendation.