Inflation pharmacy rebates could save employers billions

April 3, 2025

Summary: If the Inflation Reduction Act pharmacy inflation rebates were applied to commercial health plans, employers could save billions annually.

Source: Reitsma, et al Health Affairs, March, 2025; IRA = Inflation Reduction Act

The Inflation Reduction Act (IRA) required pharmaceutical companies to pay rebates to Medicare and Medicaid if their company’s products list prices increased by more than the rate of inflation. The initial legislation would have required rebates to non-governmental plan sponsors, but that clause was removed in the Senate when the Parliamentarian determined this could not be included in a reconciliation bill, which avoids the Senate filibuster.

The Centers for Medicare and Medicaid Services (CMS) will send out the first invoices for inflation rebates in September 2025, so we still don’t know how much the government will receive as a result of these inflation rebates. CMS has stated that this clause helped tamp down price increases for existing pharmaceuticals in the years since 2022, although others speculated that the threat of these rebates could increase prices when new drugs are launched.

The researchers found that commercial health plans could receive rebates of $8.1 billion if they had access to the CMS rebates, which would require repricing 1,812 medications. The value could be as much as $4 billion even if this list was whittled down to just 73 drugs. The researchers only considered brand name drugs, although the IRA requires rebates on some generic drugs, too.

Implications for employers:

● Don’t count on these rebates in the future; the pharmaceutical industry will argue strenuously against rebates for commercial plans, and prospects for any such legislation in the current Congress are uncertain at best.

● Rebates are a nonoptimal way to decrease prices, as they require reconciliation and invite the need for intermediaries. However, employers have likely benefited from the IRA decision to base rebates on list price, as this has likely limited list prices. Most employer-sponsored plan net prices are linked to list prices.

Thanks for reading. You can find previous posts in the Employer Coverage archive

Please subscribe, “like” share this newsletter with friends and colleagues. Thanks!

Tomorrow: Friday Shorts and follow ups