Bill Aims to Lower Drug Costs by Expanding Inflation Rebates, Rewinding Price Clock to 2016

This legislation, the 'Lower Drug Costs for Families Act,' adjusts how Medicare calculates inflation rebates for certain prescription drugs under Part B and Part D. It aims to curb rising drug costs by requiring manufacturers to pay rebates if their prices increase faster than inflation, using 2016 as the starting point for measuring those increases, rather than the current 2021 benchmark. These changes are set to take effect starting October 1, 2025, for Part D drugs and January 1, 2026, for Part B drugs.

Rewinding the Clock on Drug Prices

The core change here involves shifting the base year used to calculate these inflation rebates. Under amendments to sections 1847A(i) and 1860D14B of the Social Security Act, the bill resets the comparison point for price increases from 2021 back to 2016. Why does this matter? If a drug's price significantly outpaced inflation between 2016 and 2021, manufacturers would now owe a larger rebate to Medicare than under current rules, which only look at increases since 2021. Think of it like this: if a medication doubled in price between 2016 and 2020 but only saw small increases since 2021, this change captures that earlier, larger price hike in the rebate calculation.

Fine-Tuning the Rebate Rules

Beyond the base year change, the bill makes technical adjustments to how rebates are calculated. For Part B drugs (often administered in a doctor's office), it clarifies the use of "billing units." For Part D drugs (typically picked up at a pharmacy), it specifies that certain drug units won't count towards the total used for rebate calculations. These exclusions include drugs already paid for by state Medicaid plans or, starting in 2026, drugs receiving discounts under the federal 340B program (which supports certain hospitals and clinics). This prevents manufacturers from essentially paying twice – a discount and an inflation penalty – on the same unit of medicine. The bill also directs the government to set up ways for manufacturers to update their pricing information.

Who Sees the Difference?

The main goal is to put downward pressure on drug prices. If manufacturers face larger rebates for past price hikes, the idea is that this could lead to lower net prices for Medicare, potentially saving taxpayer money. For individuals on Medicare, lower drug acquisition costs for the program could eventually translate into lower out-of-pocket expenses, though the direct impact depends on specific plan designs and future price negotiations. On the flip side, drug manufacturers are the group most directly affected, as they would likely face increased rebate obligations due to the earlier base year, effectively clawing back more revenue from significant price increases since 2016.