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Drugmakers may face fines for inflation

by SuperiorInvest

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

Key things

  • Manufacturers of 27 different drugs will be immediately subject to fines for prices that exceed the rate of inflation.
  • Out-of-pocket costs will be reduced from April 1, but the government will not start billing companies for reimbursement until 2025.
  • Analysts fear drugmakers will raise introductory prices as a result.

The move lowers costs for Medicare beneficiaries

Starting in April, Medicare beneficiaries will pay lower co-insurance for Part B drugs that are raising prices faster than inflation, White House domestic policy adviser Susan Rice said Wednesday.

Drug manufacturers will have to reimburse Medicare for price increases above the rate of inflation, potentially reducing drug costs for Medicare beneficiaries with disabilities or those 65 and older. Failure to do so will result in the company having to pay a fine of 125% of the discount amount.

The government said 27 drugs would be subject to inflationary penalties, which could reduce out-of-pocket costs for Medicare beneficiaries by up to $390 per average dose. This list includes cancer drugs from Pfizer (PFE), Gilead Sciences (GILD) and Seagen (SGEN) and Abbvie (ABBV) the arthritis drug Humira.

According to Leigh Purvis, AARP’s director of health care cost and access, the new provision will “discourage drug companies from those big annual price increases that often exceed inflation.

Medicare will start reducing out-of-pocket payments for members on April 1, but the government will start billing companies for rebates in 2025.

One of the first provisions of the law Inflation Reduction Actsigned by President Biden last August, prohibits companies from raising the price of a drug above what it would be if it were raised at or below inflation multiplied by what Medicare paid for all sales of the drug.

Will higher prices follow?

Americans pay two to three times more for prescription drugs than citizens of other countries, according to a White House report.

From 2019 to 2020, the prices of half of all drugs covered by Medicare rose more than the rate of inflation, according to a Kaiser Family Foundation report. A third of those drugs whose prices rose even with the modest 1% inflation in place before the recent spike saw increases of 7.5% or more.

While it’s seen as a move to help those most in need, the rebate provision may lead drugmakers to set higher prices than they would have before the Inflation Reduction Act banned price increases.

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

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