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Drugmakers could face inflationary penalties


Companies that raise drug prices faster than inflation will have to rebate Medicare beneficiaries or face fines in the US, the latest development in President Joe Biden’s plan to reduce prescription drug costs.

Key learning points

  • Drugmakers of 27 different drugs will be subject to immediate fines for prices exceeding inflation rates.
  • Out-of-pocket costs will be reduced starting April 1, but the government won’t start billing companies for reimbursement until 2025.
  • Analysts fear that drugmakers will raise launch prices as a result.

Move lowers costs for Medicare recipients

Beginning in April, Medicare beneficiaries will pay a lower coinsurance for Part B drugs that raise prices faster than inflation, White House domestic policy adviser Susan Rice said Wednesday.

Drug manufacturers will have to reimburse Medicare for price increases that exceed inflation rates, potentially reducing drug costs for Medicare beneficiaries with disabilities or age 65 and older. If they fail to do so, the company must pay a fine of 125% of the discount amount.

The government said 27 drugs would face inflation penalties, in a move that could cut out-of-pocket costs for Medicare recipients by as much as $390 per average dose. That list includes cancer drugs from Pfizer (PFE), Gilead Sciences (GILD), and Seagen (SGEN) and Abbvie’s (ABBV) arthritis drug Humira.

The new provision will “discourage drug companies from making those large annual price increases that often exceed inflation,” said Leigh Purvis, AARP’s director of health care costs and access.

Medicare will begin cutting out-of-pocket costs for members on April 1, but the government will begin billing companies for discounts in 2025.

One of the first provisions of the Inflation Reduction Act, signed into law last August by President Biden, prohibits companies from raising the price of a drug above what it would have been had it been raised at or below inflation multiplied by what Medicare paid for all selling the drug.

Will higher prices follow?

According to a White House release, Americans pay two to three times more for prescription drugs than citizens in other countries.

Between 2019 and 2020, the prices of half of all Medicare-covered drugs rose more than inflation, according to a report from the Kaiser Family Foundation. One-third of drugs with price increases even exceeding the modest 1% inflation rate before the recent surge had increases of 7.5% or more.

While this is seen as a move that will help those most in need, the rebate provision could lead drugmakers to charge higher prices than they would have done before the Inflation Reduction Act restricted price increases.

“This is an important first step,” Purvis said. “Launch pricing is probably the next big battle.”

Joanna Swanson

Joanna Swanson is Europe correspondent at the Thomson Reuters Foundation based in Brussels covering politics, culture, business, climate change, society, economies and inclusive tech. With specific focus in breaking news, she has covered some of the world's most significant stories.