The proposal further clarifies that suppliers who receive a drug that has been designated for the tax under the IRA, but who are not involved in the first sale, will not be responsible for paying the excise tax.
The Inflation Reduction Act permits Medicare to negotiate the prices of certain prescription drugs to reduce costs, especially for drugs without generic or biosimilar alternatives. As part of the law, drug companies that refuse to participate in price negotiations face a tax penalty, ranging from 65% to 95% of their sales, under Internal Revenue Code Section 5000D.
The proposed rules also allow drugmakers to adjust their pricing for reporting purposes to reflect the common discounts and rebates often found in the prescription drug supply chain. This adjustment aims to ensure accurate reporting of the drug prices subject to the tax.
Additionally, the proposal outlines the criteria for identifying drug sales subject to the tax, which will apply when a drugmaker sells a drug at a non-negotiated price during the IRA’s designated time periods. Drugmakers may also use percentages outlined in a separate safe harbor proposal to determine which sales are taxable, though the IRS and Treasury acknowledged that this process may be complex.
