The US will impose inflationary penalties on the first set of drugs, reducing costs

WASHINGTON, March 15 (Reuters) – The U.S. government said on Wednesday it would subject 27 drugs to inflation penalties, a move that would reduce spending for Medicare beneficiaries by $2 to as much as $390 per average dose.

President Joe Biden̵[ads1]7;s signature Inflation Reduction Act includes a provision that penalizes drugmakers for charging prices that rise faster than inflation for people with disabilities or age 65 and older on the government’s Medicare health program.

“Beginning April 1, Medicare beneficiaries will pay lower coinsurance for Part B drugs whose prices are increasing faster than inflation,” White House domestic policy adviser Susan Rice told reporters at a news conference.

The list includes AbbVie Inc’s ( ABBV.N ) blockbuster arthritis drug, Humira, Gilead Sciences Inc’s ( GILD.O ) Car-T cancer therapy, Yescarta, and Seagen Inc’s ( SGEN.O ) targeted cancer therapy, Padcev, the White House said in a fact sheet.

Companies that raise prices higher than the rate of inflation will be required to pay Medicare the difference in the form of a rebate. Those who fail to pay the rebate will face a penalty equal to 125% of the rebate amount.

The government will begin billing companies for the rebates in 2025, but Medicare will begin reducing out-of-pocket costs for members in April.

The direct impact on drugmakers appears small for now, Wells Fargo analyst Mohit Bansal said in a research note.

However, the announcement is “a sign that the government is signaling to the industry that it is serious about curbing drug price increases. We suspect that companies may become more cautious about raising prices because of this,” he said.

Medicare began examining the price increases in October 2022 for Medicare Part B drugs, often used in hospitals, which are complex biologic drugs or drugs with only one manufacturer.

The government will update the list of medicines every quarter.

Price increases for half of all drugs covered by Medicare outpaced inflation from 2019 to 2020, which averaged 1% that year. A third of these had price jumps of over 7.5%.

The Department of Health and Human Services (HHS) also on Wednesday will release initial guidance on how the Medicare prescription drug negotiation process will work, Rice said.

Reporting by Ahmed Aboulenein in Washington, additional reporting by Manas Mishra in Bengaluru; Editing by Josie Kao

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