Title 42, The Public Health and WelfareRelease 119-110
§1395w–114b Manufacturer Rebate for Certain Drugs with Prices Increasing Faster Than Inflation
Title 42 › CHAPTER 7 — SOCIAL SECURITY › SUBCHAPTER XVIII — HEALTH INSURANCE FOR AGED AND DISABLED › Part D — Voluntary Prescription Drug Benefit Program › subpart 2 — prescription drug plans; pdp sponsors; financing › § 1395w–114b
Summary
Drug makers must pay rebates when the price of a Part D drug goes up faster than inflation. The Secretary of Health must tell each manufacturer, no later than 9 months after each 12‑month “applicable period,” how much the price rose above inflation for each dosage and strength and what rebate is due. After getting that notice, the manufacturer has 30 days to pay the rebate. The Secretary can delay reporting for the periods that start October 1, 2022, and October 1, 2023, until December 31, 2025. The rebate is the number of units dispensed multiplied by the amount the annual manufacturer price exceeds an inflation‑adjusted payment amount. Starting with plan year 2026, units that received discounts under section 256b are left out. The Secretary can reduce or waive rebates for drugs in shortage, for severe supply disruptions, or to avoid future shortages of generics. The annual and benchmark prices use the manufacturer’s average price each quarter weighted by units dispensed. The inflation‑adjusted payment amount starts with the benchmark price and grows by the change in the CPI‑U between the benchmark and the applicable period. The Secretary will correct rebates if plan sponsors report revised unit counts, and manufacturers must repay any underpayment within 30 days. All rebates go into the Medicare Prescription Drug Account. If a manufacturer fails to pay, it faces a civil penalty of 125% of the unpaid rebate. Decisions about unit counts, whether a drug is rebatable, and the rebate math cannot be appealed. Key terms (one line each): Part D rebatable drug — a covered Part D drug that meets the law’s approval and market rules, but not one whose average annual cost per user is under $100 (that $100 is increased by CPI as described); Unit — the smallest dispensable amount (like a tablet or milligram); Payment amount benchmark period — January 1, 2021, through the month before October 1, 2021; Benchmark period CPI‑U — CPI‑U for January 2021; Applicable period CPI‑U — CPI‑U for the first month of the applicable period; Average manufacturer price — as defined under section 1396r–8(k)(1); Applicable period — a 12‑month period starting October 1 of each year beginning October 1, 2022. The Secretary will implement rules for 2022, 2023, and 2024 by guidance.
Full Legal Text
Title 42, §1395w–114b
The Public Health and Welfare, Source: USLM XML via OLRC
(a)Requirements
(1)Secretarial provision of information
Not later than 9 months after the end of each applicable period (as defined in subsection (g)(7)), subject to paragraph (3), the Secretary shall, for each part D rebatable drug, report to each manufacturer of such part D rebatable drug the following for such period:
(A)The amount (if any) of the excess annual manufacturer price increase described in subsection (b)(1)(A)(ii) for each dosage form and strength with respect to such drug and period.
(B)The rebate amount specified under subsection (b) for each dosage form and strength with respect to such drug and period.
(2)Manufacturer requirements
For each applicable period, the manufacturer of a part D rebatable drug, for each dosage form and strength with respect to such drug, not later than 30 days after the date of receipt from the Secretary of the information described in paragraph (1) for such period, shall provide to the Secretary a rebate that is equal to the amount specified in subsection (b) for such dosage form and strength with respect to such drug for such period.
(3)Transition rule for reporting
The Secretary may, for each rebatable covered part D drug, delay the timeframe for reporting the information and rebate amount described in subparagraphs (A) and (B) of such paragraph for the applicable periods beginning October 1, 2022, and October 1, 2023, until not later than December 31, 2025.
(b)Rebate amount
(1)In general
(A)Calculation
For purposes of this section, the amount specified in this subsection for a dosage form and strength with respect to a part D rebatable drug and applicable period is, subject to subparagraph (C), paragraph (5)(B), and paragraph (6), the estimated amount equal to the product of— (i)
(ii)the amount (if any) by which—
(I)the annual manufacturer price (as determined in paragraph (2)) paid for such dosage form and strength with respect to such part D rebatable drug for the period; exceeds
(II)the inflation-adjusted payment amount determined under paragraph (3) for such dosage form and strength with respect to such part D rebatable drug for the period.
(B)Excluded units
For purposes of subparagraph (A)(i), beginning with plan year 2026, the Secretary shall exclude from the total number of units for a dosage form and strength with respect to a part D rebatable drug, with respect to an applicable period, units of each dosage form and strength of such part D rebatable drug for which the manufacturer provides a discount under the program under section 256b of this title.
(C)Reduction or waiver for shortages and severe supply chain disruptions
The Secretary shall reduce or waive the amount under subparagraph (A) with respect to a part D rebatable drug and an applicable period—
(i)in the case of a part D rebatable drug that is described as currently in shortage on the shortage list in effect under section 356e of title 21 at any point during the applicable period;
(ii)in the case of a generic part D rebatable drug (described in subsection (g)(1)(C)(ii)) or a biosimilar (defined as a biological product licensed under section 262(k) of this title), when the Secretary determines there is a severe supply chain disruption during the applicable period, such as that caused by a natural disaster or other unique or unexpected event; and
(iii)in the case of a generic Part D rebatable drug (as so described), if the Secretary determines that without such reduction or waiver, the drug is likely to be described as in shortage on such shortage list during a subsequent applicable period.
(2)Determination of annual manufacturer price
The annual manufacturer price determined under this paragraph for a dosage form and strength, with respect to a part D rebatable drug and an applicable period, is the sum of the products of— (A)
(B)the ratio of—
(i)the total number of units of such dosage form and strength reported under section 1396r–8 of this title with respect to each such calendar quarter of such period; to
(ii)the total number of units of such dosage form and strength reported under section 1396r–8 of this title with respect to such period, as determined by the Secretary.
(3)Determination of inflation-adjusted payment amount
The inflation-adjusted payment amount determined under this paragraph for a dosage form and strength with respect to a part D rebatable drug for an applicable period, subject to paragraph (5), is—
(A)the benchmark period manufacturer price determined under paragraph (4) for such dosage form and strength with respect to such drug and period; increased by
(B)the percentage by which the applicable period CPI–U (as defined in subsection (g)(5)) for the period exceeds the benchmark period CPI–U (as defined in subsection (g)(4)).
(4)Determination of benchmark period manufacturer price
The benchmark period manufacturer price determined under this paragraph for a dosage form and strength, with respect to a part D rebatable drug and an applicable period, is the sum of the products of— (A)
(B)the ratio of—
(i)the total number of units reported under section 1396r–8 of this title of such dosage form and strength with respect to each such calendar quarter of such payment amount benchmark period; to
(ii)the total number of units reported under section 1396r–8 of this title of such dosage form and strength with respect to such payment amount benchmark period.
(5)Special treatment of certain drugs and exemption
(A)Subsequently approved drugs
In the case of a part D rebatable drug first approved or licensed by the Food and Drug Administration after October 1, 2021, subparagraphs (A) and (B) of paragraph (4) shall be applied as if the term “payment amount benchmark period” were defined under subsection (g)(3) as the first calendar year beginning after the day on which the drug was first marketed and subparagraph (B) of paragraph (3) shall be applied as if the term “benchmark period CPI–U” were defined under subsection (g)(4) as if the reference to “January 2021” under such subsection were a reference to “January of the first year beginning after the date on which the drug was first marketed”.
(B)Treatment of new formulations
(i)In general
In the case of a part D rebatable drug that is a line extension of a part D rebatable drug that is an oral solid dosage form, the Secretary shall establish a formula for determining the rebate amount under paragraph (1) and the inflation adjusted payment amount under paragraph (3) with respect to such part D rebatable drug and an applicable period, consistent with the formula applied under subsection (c)(2)(C) of section 1396r–8 of this title for determining a rebate obligation for a rebate period under such section.
(ii)Line extension defined
In this subparagraph, the term “line extension” means, with respect to a part D rebatable drug, a new formulation of the drug, such as an extended release formulation, but does not include an abuse-deterrent formulation of the drug (as determined by the Secretary), regardless of whether such abuse-deterrent formulation is an extended release formulation.
(C)Selected drugs
In the case of a part D rebatable drug that is a selected drug (as defined in section 1320f–1(c) of this title) with respect to a price applicability period (as defined in section 1320f(b)(2) of this title), in the case such drug is no longer considered to be a selected drug under section 1320f–1(c) of this title, for each applicable period (as defined under subsection (g)(7)) beginning after the price applicability period with respect to such drug, subparagraphs (A) and (B) of paragraph (4) shall be applied as if the term “payment amount benchmark period” were defined under subsection (g)(3) as the last year beginning during such price applicability period with respect to such selected drug and subparagraph (B) of paragraph (3) shall be applied as if the term “benchmark period CPI–U” were defined under subsection (g)(4) as if the reference to “January 2021” under such subsection were a reference to “January of the last year beginning during such price applicability period with respect to such drug”.
(6)Reconciliation in case of revised information
The Secretary shall provide for a method and process under which, in the case where a PDP sponsor of a prescription drug plan or an MA organization offering an MA–PD plan submits revisions to the number of units of a rebatable covered part D drug dispensed, the Secretary determines, pursuant to such revisions, adjustments, if any, to the calculation of the amount specified in this subsection for a dosage form and strength with respect to such part D rebatable drug and an applicable period and reconciles any overpayments or underpayments in amounts paid as rebates under this subsection. Any identified underpayment shall be rectified by the manufacturer not later than 30 days after the date of receipt from the Secretary of information on such underpayment.
(c)Rebate deposits
Amounts paid as rebates under subsection (b) shall be deposited into the Medicare Prescription Drug Account in the Federal Supplementary Medical Insurance Trust Fund established under section 1395t of this title.
(d)Information
For purposes of carrying out this section, the Secretary shall use information submitted by—
(1)manufacturers under section 1396r–8(b)(3) of this title;
(2)States under section 1396r–8(b)(2)(A) of this title; and
(3)PDP sponsors of prescription drug plans and MA organization offering MA–PD plans under this part.
(e)Civil money penalty
If a manufacturer of a part D rebatable drug has failed to comply with the requirement under subsection (a)(2) with respect to such drug for an applicable period, the manufacturer shall be subject to a civil money penalty in an amount equal to 125 percent of the amount specified in subsection (b) for such drug for such period. The provisions of section 1320a–7a of this title (other than subsections (a) (with respect to amounts of penalties or additional assessments) and (b)) shall apply to a civil money penalty under this subsection in the same manner as such provisions apply to a penalty or proceeding under section 1320a–7a(a) of this title.
(f)Limitation on administrative or judicial review
There shall be no administrative or judicial review of any of the following:
(1)The determination of units under this section.
(2)The determination of whether a drug is a part D rebatable drug under this section.
(3)The calculation of the rebate amount under this section.
(g)Definitions
In this section: (1) Part D rebatable drug
(2)Unit
The term “unit” means, with respect to a part D rebatable drug, the lowest dispensable amount (such as a capsule or tablet, milligram of molecules, or grams) of the part D rebatable drug, as reported under section 1396r–8 of this title.
(3)Payment amount benchmark period
The term “payment amount benchmark period” means the period beginning January 1, 2021, and ending in the month immediately prior to October 1, 2021.
(4)Benchmark period CPI–U
The term “benchmark period CPI–U” means the consumer price index for all urban consumers (United States city average) for January 2021.
(5)Applicable period CPI–U
The term “applicable period CPI–U” means, with respect to an applicable period, the consumer price index for all urban consumers (United States city average) for the first month of such applicable period.
(6)Average manufacturer price
The term “average manufacturer price” has the meaning, with respect to a part D rebatable drug of a manufacturer, given such term in section 1396r–8(k)(1) of this title, with respect to a covered outpatient drug of a manufacturer for a rebate period under section 1396r–8 of this title.
(7)Applicable period
The term “applicable period” means a 12-month period beginning with October 1 of a year (beginning with October 1, 2022).
(h)Implementation for 2022, 2023, and 2024
The Secretary shall implement this section for 2022, 2023, and 2024 by program instruction or other forms of program guidance.
Reference
Citations & Metadata
Citation
42 U.S.C. § 1395w–114b
Title 42, The Public Health and Welfare
Last Updated
Sep 23, 2026
Release point: 119-110