It has been 15 years since the creation of the Medicare Part D prescription drug benefit. Research indicates that the program has been largely successful: beneficiaries report improved access to prescription drugs and the vast majority are satisfied with their coverage. However, there is growing concern about trends in Medicare Part D spending, which has accelerated considerably over the past decade. One factor helping to drive these trends is brand-name drug price growth. Brand-name drug prices have been growing faster than general inflation for more than a decade, and drug companies are increasingly relying on such price increases for revenue growth. Meanwhile, Medicare Part D remains prohibited from negotiating with pharmaceutical companies, leaving it exposed to the possibility of paying ever-higher prices for the exact same drug products. In response to this challenge, Congress recently considered bipartisan legislation that would require drug manufacturers to pay a rebate to the federal government if their prices increased faster than the rate of general inflation. Notably, a similar inflationary rebate is already required under Medicaid and is responsible for roughly half of the rebates that state Medicaid programs receive from brand-name drug manufacturers. This Spotlight provides additional context for inflation-based rebates, by examining excess Medicare Part D spending due to annual drug price changes that exceeded the rate of general inflation between 2015 and 2019.
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