The Inflation Reduction Act: A Radically Different Market Environment

The 2022 Inflation Reduction Act (IRA) significantly changes the U.S. prescription drug pricing regulations, creating a radically different market environment. The federal government will regulate the price of prescription drugs in Medicare, limit drug manufacturers’ ability to increase wholesale prices and make changes to the Medicare Part D prescription drug benefit. In addition, Medicare Parts B and D gain negotiation powers for the price of some drugs without generic or biosimilar competition. The Act ends a 19-year-old ban on Medicare from negotiating the price of prescription medicines with manufacturers.

The provisions of the IRA cover inpatient, outpatient and ambulatory components of medication use and span several years. Here’s what you need to know:

The Affordable Care Act

As of Oct. 1, 2022, people with Affordable Care Act insurance plans continue to save during 2023 open enrollment.

Medicare Part B

Qualifying biosimilars. As of Oct. 1, 2022, Medicare will temporarily pay average sales price (ASP) +8% of the reference add-on (Table).

Drug rebates. As of Jan. 1, 2023, drug rebates from manufacturers are required if prices for certain Part B drugs increase faster than the rate of inflation. Payment for inflation rebates for quarters in 2023 and 2024 must be invoiced by Sept. 30, 2025.

Coinsurance. Beginning April 1, 2023, coinsurance may be lowered for some drugs if its price increased faster than the rate of inflation in a benchmark quarter.

Payment caps. Beginning July 1, 2024, payments for new biosimilars will be capped when ASP data is not available.

Medicare Part D

Drug rebates. Starting Oct. 1, 2022, drug manufacturers must pay rebates to Medicare if their prices for certain Part D drugs increase faster than the rate of inflation over the 12-month period and must be invoiced by Dec. 31, 2025.

Drug price negotiation program. The first cohort of Medicare Part D drugs selected for negotiation will be announced by Sept. 1, 2023, and cohorts of 10-20 Part B or Part D drugs for negotiation will be announced by Feb. 1 in each subsequent year through 2029. The Centers for Medicare and Medicaid Services will publish maximum fair prices by Nov. 30 each subsequent year until 2029. Prices will go into effect on a rolling basis between 2026 and 2031.

Premium stabilization. Beginning Jan. 1, 2024, limits to the average premium increase across most Part D plans will be set at six percent; protection continues through 2029. Stabilization plans for premiums will be implemented in 2030 onward.

Catastrophic phase. In 2024, elimination of the five percent cost-sharing in the catastrophic phase will begin after enrollees reach $7,050 in out-of-pocket costs for covered drugs.

Out-of-pocket limit. In 2025, out-of-pocket costs will be capped at $2,000; costs can be paid in monthly increments.

Manufacturer discount program. In 2025, a manufacturer discount program will replace the coverage gap discount program that will apply to both the initial coverage and catastrophic phases.

Government reinsurance. In 2025, government reinsurance in the catastrophic phase will decrease from 80 percent to 20 percent for brand name drugs, biologicals and biosimilars and from 80 percent to 40 percent for generics. In 2026, it will be 40 percent for Medicare Part D drugs selected for negotiation in their applicability period.

Proposed Payment Systems and Fee Schedules in 2023

Cost-sharing

Insulin. As of Jan. 1, 2023, out-of-pocket payments for people enrolled in a Medicare prescription drug plan will be capped at $35 for a month’s supply of each insulin they are prescribed that is covered by their drug plan and dispensed at a pharmacy or through a mail-order pharmacy. Part D deductibles won’t apply. As of July 1, 2023, traditional Medicare beneficiaries using insulin through a traditional pump (covered through the Part B durable medical equipment benefit) won’t pay more than $35 for a month’s supply of insulin; the deductible doesn’t apply to the insulin.

Vaccines. As of Jan. 1, 2023, adult vaccines recommended by the Advisory Committee on Immunization Practices will be available at no cost to people covered by Medicare Part D.

Low-income subsidy program (LIS or “Extra Help”). In 2024, some low-income individuals covered by Medicare Part D will receive financial help with prescription drug cost-sharing and premiums.

Action Steps

1) Ensure your pharmacy drug and change description master files are up to date and in sync using the appropriate brand-specific healthcare common procedural code set (HCPCS). Biosimilar HCPCS codes are brand-specific and not interchangeable. The differentiation between end-stage renal disease (ESRD) and non-ESRD for some codes remains.

2) 2023 annual ICD-10 code update: Remember that any of these code changes (effective Oct. 1, 2022) have an impact on prior authorizations (PAs), as well as national and local coverage determinations. Evaluate active local coverage determination articles published by your Medicare administrative contractor (MAC), and examine the national coverage determinations and PAs for commercial and Medicare Advantage payers. Failure to do so will automatically result in denials for lack of medical necessity.

3) Use appropriate current procedural terminology (CPT) codes 96401-96549 for chemotherapy and other highly complex drug or highly complex biologic agent administration. An appropriate modifier applies to billing for noncovered services. See CPT codebook for specifics.