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Calculation of Potential Inflation-Indexed Rebates For Medicare Part B Drugs 2017

WHY WE DID THIS STUDY

Statutorily mandated rebates, which include both basic rebates and inflation-indexed rebates (additional rebates owed when drug prices rise faster than inflation), amount to a substantial percentage of spending on Medicaid prescription drugs. Medicare does not have the authority to collect rebates for Part B drugs and biologicals (i.e., "Part B drugs"). In an earlier report, OIG found that a rebate program for Part B drugs could have resulted in at least $2.7 billion in rebates (both basic rebate and inflation-indexed rebate segments) in 2011. OIG conducted this current review after receiving a congressional request asking us to update our earlier rebate calculations using only the inflation-indexed portion of the Medicaid rebate methodology.

HOW WE DID THIS STUDY

Applying the same formula that Medicaid uses to determine inflation-indexed rebates, we calculated how much in inflation-indexed rebates could have been associated 64 high-expenditure Part B drugs in 2015. We performed separate calculations using both average sales prices (ASPs) and average manufacturer prices (AMPs). We also identified claims issues and coding-related issues that would need to be addressed before implementing a rebate program under Part B.

WHAT WE FOUND

An ASP-based rebate program for Medicare Part B drugs could have resulted in $1.4 billion in inflation-indexed rebates in 2015 for 64 high expenditure drugs. An AMP-based rebate program for the same 64 drugs could have resulted in $1.8 billion in inflation indexed rebates that same year. Several implementation issues related to claims and data would need to be addressed should Congress decide to establish a rebate program under Part B.

WHAT WE CONCLUDE

Inflation indexed rebates are intended to help protect State Medicaid programs and the Federal Government from significant drug price increases. Medicare Part B does not have similar rebate authority. The results of this current study build upon our original 2011 analysis. This analysis did not take into account how implementation of a Part B rebate requirement could affect beneficiary coinsurance obligations, beneficiary access to prescription drugs, and the overall pharmaceutical marketplace. Furthermore, we did not address the operational burden of implementing such a requirement.

Any consideration of a rebate program should address the following administrative issues that may hinder rebate collections: the use of Healthcare Common Procedure Coding System codes, incorrect coding conversions, unavailable drug pricing data, and difficulties in identifying 340B purchased drugs.

Copies can also be obtained by contacting the Office of Public Affairs at Public.Affairs@oig.hhs.gov.

Download the complete report.

Office of Inspector General, U.S. Department of Health and Human Services | 330 Independence Avenue, SW, Washington, DC 20201