Estimated Savings From Extending Prescription Drug Inflationary Rebates To All Commercial Plans

The inflationary rebate provisions of the Inflation Reduction Act (IRA) of 2022 require pharmaceutical manufacturers to pay money back to Medicare if they raise prices faster than the rate of inflation. Opportunities now exist for Congress and the states to extend inflationary rebates to commercial plans. We demonstrate the potential savings from applying inflationary rebates to prescriptions filled in commercial plans by simulating savings under several policy design options. We estimate that a policy mimicking the IRA's design could have saved as much as $8.1 billion in 2021 by imposing rebates on 1,100 drugs. To minimize the administrative burden of assessing inflationary rebates, Congress or states could restrict rebates to certain high-cost drugs and still garner substantial savings. For example, including only drugs costing more than $830 per month or ranked in the top 300 drugs by total spending could halve the number of rebate-eligible drugs yet capture 96 percent of estimated savings that could be available under a policy that mimics the IRA design ($7.7 billion). Restricting eligibility to the top 300 drugs by total spending could capture 85 percent of those potential savings ($6.9 billion), imposing rebates on just 194 drugs.