Medicare inflation rebates, and why most generics never get a bill

In September 2025, the Centers for Medicare & Medicaid Services published its tally of what drugmakers owed Medicare for raising Part B drug prices faster than inflation during 2023. The total came to more than $14 million², spread across 41 billing codes. The bill for 2025, as tallied in June 2026, was about 25 times bigger at more than $360 million⁴, and the Part D side was larger still: more than $1.9 billion⁷ for the 12 months that ended September 30, 2025.

These are the Medicare inflation rebates created by sections 11101 and 11102 of the Inflation Reduction Act of 2022. Medicare drug price negotiation picks a short list of high-spending brands each year. The inflation rebate works differently. It applies to every drug that meets the legal definition, and it is automatic: when a qualifying drug's price climbs faster than the consumer price index, the manufacturer pays Medicare the difference, according to CMS’s program page¹.

Most generic drugs never receive one of these bills, and the reason sits in the statute's definitions. This explainer walks through how the two rebate programs are calculated, where the law draws its line around generics, how shortages reduce what is owed, and what people on Medicare see at the counter. It ends with the invoice totals CMS has posted so far.

Two programs on two clocks

Part B covers drugs given in a doctor's office or hospital outpatient department, mostly injections and infusions. Part D covers drugs picked up at a pharmacy. The rebate math is similar in both. CMS takes a drug's price in a 2021 benchmark period, grows it by the change in the consumer price index for all urban consumers (CPI-U) since January 2021, and compares the result with the current price. If the current price is higher, the manufacturer owes the gap on every unit Medicare paid for.

Part B's rules are in 42 U.S.C. 1395w-3a(i)⁹ and the Part D rules in 42 U.S.C. 1395w-114b⁸. Drugs approved after the benchmark period get a later starting point. A manufacturer that fails to pay a Part D rebate faces a civil money penalty equal to 125 percent of the amount owed, the Part D statute says.

Where the law draws the generic line

In Part B the exclusion is total. A "Part B rebatable drug" must be a single source drug or biological, which the statute defines as a biological product, or a drug that is not a multiple source drug and is sold under a new drug application. Biosimilars count, except for a set of qualifying biosimilars given temporary relief. Vaccines and drugs averaging less than $100 a year per user are left out. A generic approved through an abbreviated new drug application (ANDA) and sold alongside other versions is a multiple source drug, so it cannot owe a Part B inflation rebate.

Part D is narrower than that but leaves a door open. An ANDA generic becomes a "Part D rebatable drug" only when all four of these conditions hold on the first day of the period:

• the brand-name reference drug, and any authorized generic of it, is not being marketed;
• no other therapeutically equivalent ANDA generic is being marketed;
• the manufacturer is not a first applicant during its 180-day exclusivity period;
• the manufacturer is not the first approved applicant for a competitive generic therapy.

Under 42 CFR 428.101¹⁰, CMS checks the marketing tests against FDA's National Drug Code Directory, including discontinued and delisted listings, and checks therapeutic equivalence against the Orange Book. CMS's revised Part D guidance¹¹ calls the result a sole source generic Part D rebatable drug. In plain terms, it is a generic that has become the only version of the drug on the market, the situation described in our piece on generics with one maker.

That is why the seven drugs in GxRadar's 47-drug basket that cost pharmacies more in October 2026 than in January 2014 (furosemide, warfarin, glipizide, trazodone, allopurinol, amoxicillin and cephalexin) are nowhere near a Medicare inflation rebate. FDA's Drugs@FDA records¹⁸ list between six and 22 active generic applications for each of those ingredients. The rebate also runs on AMP, a confidential manufacturer figure, rather than on the NADAC pharmacy cost survey¹⁹ we track on our price pages.

Shortages reduce the bill

Congress anticipated that a rebate could push a maker of a fragile, low-margin product to stop selling it. Both statutes tell CMS to reduce or waive the rebate for a drug listed as currently in shortage on FDA's list. For biosimilars and generic Part D rebatable drugs, CMS can also cut the rebate after a severe supply chain disruption, such as a natural disaster, and for a generic that would likely go into shortage without relief, according to CMS’s rebate-reduction FAQ¹².

How much comes off depends on the kind of drug. CMS's Part D guidance¹¹ sets a reduction of 75 percent in the first period a sole source generic or plasma-derived product is in shortage, 50 percent in the second and 25 percent after that. Other Part D drugs get 25 percent, then 10 percent, then 2 percent. Supply-disruption and likely-shortage requests for generics carry a standard 75 percent reduction. Drugs already on FDA's list need no application; CMS monitors the list itself.

One older injectable shows how this plays out. Penicillin G benzathine has been on FDA’s shortage list since April 26, 2023, according to GxRadar's copy of FDA shortage data¹⁷, and it is the subject of a separate GxRadar article. Its Part B billing code still appears on all three Part B invoice summaries, at $81,098 for 2023², $188,495 for 2024³ and $301,630 for 2025⁴. The fact sheets list amounts owed; they do not show what reductions were applied.

What people on Medicare see

Patients feel the Part B rebate directly. Starting April 1, 2023, coinsurance for a Part B rebatable drug whose price outran inflation is 20 percent of the lower, inflation-adjusted payment amount, and Medicare pays providers the difference, according to a CMS fact sheet¹³. CMS counted 18 drugs¹⁴ with reduced coinsurance in the first quarter of the policy and 64 drugs¹⁵ in the first quarter of 2025, when it said coinsurance could be lower by $1 to $10,818 per day, depending on the drug. CMS stopped publishing the quarterly list after that and now flags the adjusted coinsurance in its quarterly Part B pricing files, its program page¹ says. For how those files work, see our piece on average sales price.

Part D rebates do not change a pharmacy copay directly. The money goes to the Supplementary Medical Insurance Trust Fund, as each CMS fact sheet notes. Our explainer on Part B and Part D drugs covers which side of Medicare pays for what.

The invoices so far

Congress let CMS delay Part D reports for the first two periods until December 31, 2025. The table below lists the totals CMS has posted, with the date of each fact sheet. Counts are of billing codes (Part B) or nine-digit product codes (Part D) with any amount owed.

Brand names dominate the Part D lists. A handful of entries carry generic names, among them bumetanide and trimethoprim. The fact sheets do not say whether those are sole-source generics or products sold under a new drug application. Totals for the later periods will still move. CMS reconciles Part B years from 2024 once and Part D periods from October 2023 twice after the first invoice.

CMS has also had to work around missing data. The Bureau of Labor Statistics did not publish October 2025 CPI-U figures, so CMS said in a March 5, 2026 memo¹⁶ that it would use November 2025 data in Part B calculations for the second quarter of 2026. Beginning in 2026, the Part D statute also requires CMS to remove units sold at 340B discounts from rebate counts, and covered entities can now report those claims to a CMS repository, with the first submissions due December 31, 2026, according to CMS¹.

The next rule change is close. CMS proposed calendar 2027 updates to the rebate program on July 14, 2026, took comments through September 14 and said it plans to issue the final rule later this year. Our earlier overview of the Inflation Reduction Act and generics covers the law's other parts.