The Lower Drug Costs for Families Act modifies Medicare Part B and Part D inflation rebate calculations by incorporating commercial market data and shifting the base years backward to potentially increase manufacturer rebates.
Steven Horsford
Representative
NV-4
The Lower Drug Costs for Families Act modifies how prescription drug inflation rebates are calculated for Medicare Part B and Part D. This bill incorporates commercial market sales data into the rebate calculations for both parts. Additionally, it shifts the baseline reference years for these rebate calculations to earlier dates, starting in 2016. These changes aim to adjust the financial responsibility of manufacturers when drug prices rise faster than inflation.
Drug Price Rebate Overhaul: New Bill Shifts Inflation Baseline to 2016, Includes Commercial Sales Data
The new Lower Drug Costs for Families Act is taking aim at how the government calculates drug inflation rebates under Medicare Parts B and D. Essentially, this legislation changes the math behind how much drug manufacturers owe Medicare when they raise prices faster than inflation. The core changes are twofold: expanding the data used and moving the goalposts for when inflation started.
The New Math: Bringing in the Commercial Market
Currently, Medicare’s inflation rebate mechanism primarily looks at price increases within the Medicare system. Under this bill, starting in 2026 for Part B drugs and 2025 for Part D, manufacturers must now incorporate sales data from the commercial market when calculating the total number of units sold (SEC. 2). Think of it like this: if you’re a manufacturer, the government isn't just looking at the sales you made to Medicare patients; they’re looking at your total sales volume across the board, excluding Medicaid. This is a big deal because it ties the penalty for excessive price hikes in the Medicare program to the manufacturer’s overall market activity. The idea is to prevent manufacturers from gaming the system by manipulating sales data specific only to Medicare.
The 2016 Reset: Moving the Inflation Baseline
Perhaps the most significant change for both Part B and Part D is the massive shift in the "base year"—the starting point against which inflation is measured. Right now, that baseline is set around 2021. This bill pushes it way back to 2016 (SEC. 2). Why does this matter? Imagine you bought a car in 2021 for $30,000. If the dealer measures inflation from 2021, a $35,000 price tag today is a 16% increase. But if they measure inflation from 2016, the price increase might look much larger, potentially triggering a rebate sooner. By moving the baseline backward five years, the bill could increase the likelihood that drugs with significant price increases since 2016 will trigger a rebate. However, for a drug that had a huge price spike before 2016, this reset might actually lower the current rebate liability compared to a 2021 baseline, making this a complex variable for manufacturers.
Who’s Counting? The Administrative Headaches
For those of us who rely on Medicare, these changes are intended to lower costs by forcing manufacturers to pay more back to the government when prices rise too fast. However, the complexity of implementation is real. The government will now rely on manufacturers to submit their Average Manufacturer Price (AMP) calculations and data from state Medicaid programs to track all these sales and units (SEC. 2). For Part D, the bill also specifies that units already covered by Medicaid, the Part B rebate program, or the 340B drug discount program must be excluded from the rebate calculation. This level of data integration—combining commercial sales, Medicare sales, and various discount programs—is administratively intense and creates potential for reporting disputes. If the oversight isn't rigorous, relying on manufacturer-submitted data for these complex calculations could be a weak point in the whole system.