Inflation Reduction Act expected to increase Medicaid drug spending

The Inflation Reduction Act, signed by President Joe Biden on Aug. 16, includes several changes to Medicare drug pricing — some of which may increase Medicaid drug spending, according to Kaiser Family Foundation. 

In a policy briefing, KFF analyst Elizabeth Williams said provisions in the Inflation Reduction Act that require drugmakers to pay rebates to the government if they raise prices higher than the rate of inflation for Medicare are expected to increase Medicaid spending on drugs. 

These provisions take effect in 2023.

Medicaid already receives rebates from drugmakers, which provide a significant amount of savings for the program. 

"The Medicare inflation-related rebates will mean slower growth in drug prices over time, leading to lower Medicaid inflation-related rebates," Williams said. "These rebate losses are expected to outweigh any pharmacy savings from slower drug price growth." 

Additionally, drug companies are expected to introduce drugs at higher prices to offset limits on how much they can be increased year over year, further raising costs for Medicaid spending. 

Read the full policy briefing here.

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