This Act updates prescription drug inflation rebate calculations to apply to drugs on the commercial market and adjusts the base periods for both Medicare Part B and Part D rebates.
Catherine Cortez Masto
Senator
NV
The Lower Drug Costs for Families Act updates how prescription drug inflation rebates are calculated to ensure they apply more broadly to drugs on the commercial market. This bill modifies the rules for both Medicare Part B and Part D to adjust the unit counting methods used in rebate calculations. Key changes include excluding certain units, such as those covered by Medicaid, and shifting the base reference years for these calculations.
Drug Cost Bill Closes Rebate Loophole: Manufacturer Liability Increases by Shifting Base Year Back to 2016
The Lower Drug Costs for Families Act aims to tackle high prescription costs by making a few highly technical, but potentially significant, changes to how the government calculates drug inflation rebates under Medicare Part B and Part D. Essentially, this bill updates the rules to make sure drug manufacturers pay inflation rebates on a much broader range of sales, not just those strictly covered by Medicare.
The Inflation Rebate Expansion: What’s Changing?
Currently, if a drug’s price increases faster than the rate of inflation, the manufacturer has to pay a rebate back to the government for sales under Medicare. This bill tightens up that process in two key ways. First, it clarifies that when calculating the total number of drug units subject to the rebate, manufacturers must now exclude units already paid for under state Medicaid programs. This helps prevent double-counting and streamlines the process, as the Secretary will use existing manufacturer and state data (Section 1927) for these calculations.
Second, and this is the big one, the bill shifts the base year used for calculating inflation. For Medicare Part B rebates, the reference dates are moving back five years—from 2021 to 2016. For Part D, the base period also moves back by five years, starting with periods beginning in late 2025. Why does this matter? Inflation is cumulative. By moving the starting line back to 2016, the government is dramatically increasing the window during which price increases are measured against inflation. This means manufacturers will likely owe significantly larger rebates because the price increases over the last decade are now being factored in.
Who Feels This Change?
If you’re a Medicare beneficiary, this is good news. The entire point of these rebates is to keep drug price increases in check. By increasing the manufacturer’s liability, the government is putting more pressure on drug companies to moderate price hikes. The goal is that these savings will ultimately translate to lower costs for people on Medicare Part B (drugs administered by doctors, like chemotherapy) and Part D (retail prescriptions).
For pharmaceutical manufacturers, this is where the cost lands. They will now be subject to inflation rebates on a wider net of sales, and the shift of the base year back to 2016 significantly increases their financial exposure. This is the mechanism by which the bill intends to lower overall drug costs: by making it financially painful for companies to raise prices faster than inflation over a longer period. Starting in 2026, Part D rebate calculations will also exclude units sold under the 340B drug discount program, further refining who pays what.