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.