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GAO Report on Rebates in Medicare Part D Program

Updated: Apr 3

The United States GAO (General Accountability Office) released their report on Rebates in the Medicare Part D Program this month (September 2023). GAO-23-105270, MEDICARE PART D: CMS Should Monitor Effects of Rebates on Plan Formularies and Beneficiary Spending

The study was conducted utilizing 2021 Part D Formulary data and included the review of 2020 rebate agreements negotiated between six drug manufacturers and six Part D plan sponsors, or PBMs on their behalf, for 24 brand-name drugs. The selection of drugs was based on 2020 spending and rebate data, which was the most recent data available. The GAO study team selected six of the 25 largest Part D plan sponsors by contract enrollment in 2020 and the six manufacturers of the 24 brand-name drugs. The 24 brand-name drugs were selected based on one or more factors, including: those that had at least one drug formulation that was among the 100 most highly rebated in 2020, were competitors of highly rebated drugs, or were biologics. The GAO found Part D plan sponsors received $48.6 billion in rebates from drug manufacturers in 2021. Three therapeutic drug classes accounted for 73 percent of rebates: (1) endocrine metabolic agents, including antidiabetic drugs; (2) blood modifiers, including anti-stroke drugs; and (3) respiratory agents, including anti-asthma drugs.

The findings in the report are not surprising to anyone who has been working in the industry since the inception of the Part D program in 2006.

CMS/HHS doesn’t review or consider expenditure or drug rebate information as part of the review of plan formularies. CMS officials expressed that the agency conducts a clinical review of formularies so that an evaluation of expenditures or rebate information is not necessary to ensure that a formulary is not likely to discourage enrollment. (CMS officials stated that the statutory non-interference clause, which prohibits CMS from interfering with the negotiations between drug manufacturers and Part D plan sponsors or requiring a particular formulary or price structure, prevents them from considering plan rebate arrangements as part of the agency’s formulary review.)

The GAO disputes this stating, “Monitoring of rebate and expenditure data could provide the agency, Congress, and others with information on whether formulary practices are likely to discourage enrollment of certain beneficiaries. In addition, such monitoring would be consistent with federal internal control standards, which call for agencies to identify, analyze, and respond to risks related to achieving its defined objectives.”

  • Overall, rebates may reduce Part D drug spending because they lower Medicare’s monthly payments to plan sponsors and are then subsequently utilized to lower beneficiary premiums.

  • Rebates encourage plans to place higher-gross-cost, highly rebated drugs on their formularies over lower-cost alternatives.

  • Beneficiary spending (cost-share) was higher than plan sponsor spending after accounting for rebates for drugs with high rebates, and beneficiaries generally paid more for higher-gross-cost highly rebated drugs than for lower cost alternatives (generics or non-preferred brand drugs.)

  • Medicare spending was also affected because the program was responsible for a large proportion of cost-sharing for low-income subsidy beneficiaries.

As the provisions in the Inflation Reduction Act of 2022 are fully implemented including those related to drug price negotiation for selected high-cost drugs and limits for beneficiary out-of-pocket spending, rebate incentives and the effects rebates have on formulary design and spending may change.

Contact The Rebellis Group to assist your organization with the complex and ever-changing Medicare landscape.


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