US to impose inflation fines on first set of drugs, lowering costs

The US government said on Wednesday it would subject 27 drugs to inflation penalties, a move that will reduce out-of-pocket costs for Medicare recipients by $2 to as much as $390 per average dose.

President Joe Biden's signature Inflation Reduction Act includes a provision penalizing 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.

"Starting on April 1, Medicare beneficiaries will pay lower coinsurance for Part B drugs that raise prices faster than inflation," White House Domestic Policy Adviser Susan Rice told reporters on a press call.

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 inflation rate will be required to pay Medicare the difference in the form of a rebate. Those that fail to pay the rebate will face a penalty equaling 125 percent of the rebate amount.

The government will start invoicing the companies for the rebates in 2025 but Medicare will start reducing out-pocket-costs for members in April.

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

However, the announcement is "a sign of the government signaling to industry that it is serious about curbing drug price increases. We suspect companies could get more careful about raising their prices due to this," he said.

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

The government will update the list of drugs each quarter.

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

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