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Inflation Reduction Act (IRA)

A 2022 federal law that, for the first time, allows Medicare to negotiate prices directly with drug manufacturers for select high-cost medications and creates new inflation rebate and Part D redesign provisions.

How It Works

The Inflation Reduction Act (Public Law 117-169), signed August 16, 2022, contains the most significant U.S. drug pricing reforms since Medicare Part D was created in 2003. The drug-pricing provisions include: (1) the Medicare Drug Price Negotiation Program, authorizing HHS to negotiate "maximum fair prices" for selected high-spend drugs, with the first 10 drugs' negotiated prices taking effect January 1, 2026; (2) inflation rebates, requiring manufacturers whose Part B or Part D drug WAC increases exceed CPI-U to pay Medicare back the excess; (3) the $35/month insulin copay cap for Medicare beneficiaries, effective January 1, 2023; (4) elimination of Part D cost-sharing for ACIP-recommended adult vaccines, effective January 1, 2023; (5) the Part D redesign with a $2,000 annual OOP cap effective January 1, 2025; and (6) the Medicare Prescription Payment Plan (MPPP) allowing monthly installment OOP payments, effective 2025. CBO estimated the drug provisions would save Medicare roughly $100 billion over 10 years. Manufacturer litigation challenging IRA negotiation is ongoing, Merck, BMS, J&J, AstraZeneca, and Novartis have all filed federal lawsuits raising First Amendment, Fifth Amendment takings, and Eighth Amendment excessive fines arguments, most have lost at the district court level as of 2024, with appeals pending in the Third, Fifth, and Federal Circuits. The first 10 negotiated drugs cover conditions representing 9+ million Medicare beneficiaries and roughly $50 billion in annual Part D spending.

Related Terms

  • IRA Medicare Drug Negotiation, The process under the Inflation Reduction Act where CMS negotiates a "maximum fair price" directly with manufacturers for selected high-cost Medicare drugs.
  • Medicare Part D Redesign (2025), The IRA-mandated restructuring of Medicare Part D, effective January 1, 2025, that caps annual out-of-pocket drug spending at $2,000 and shifts cost-sharing liability among plans, manufacturers, and government.
  • Inflation Rebate Penalty, An IRA provision requiring drug manufacturers to pay Medicare rebates when a drug's price increases exceed general inflation (CPI-U) on a year-over-year basis.
  • Medicare Part D, The prescription drug benefit within Medicare, covering outpatient medications for 50+ million Americans aged 65+ and those with disabilities.

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About This Definition

This definition is part of the DrugPrice Drug Pricing Glossary, 49 terms explaining how prescription drug pricing works in the United States. All definitions are written in plain language for patients, caregivers, journalists, and healthcare professionals.

this entity is one of the U.S. Medicare prescription-drug pricing concepts that recurs across this site. The definition above is the technical answer; the paragraphs below add the practical context for how the concept connects to the CMS Medicare Part D Drug Spending data data behind every per-entity page on the site.

In the CMS Medicare Part D Drug Spending data data, this concept shapes one or more of the fields that drive the per-entity grades and rankings on this site. The methodology page describes which fields feed into which output; this glossary entry documents the underlying term.

Source: CMS Medicare Part D Spending, 2026.