WASHINGTON/LAS VEGAS, March 15 (Reuters) – U.S. President Joe Biden on Wednesday said his administration would subject 27 drugs to inflation penalties, a move that will reduce out-of-pocket costs for Medicare recipients by as much as $390 per dose, and he pledged more drug price cuts were coming.
Drugmakers hiked the price for 27 drugs last quarter higher than the rate of inflation, and will have to pay the difference on those medicines to Medicare, the government healthcare program for those age 65 and older and the disabled.
“It’s going to change the way drugs are priced, lower the costs for seniors long term,” Biden said in Las Vegas.
People may be surprised that companies including Eli Lily and Co have capped out-of-pocket costs for insulin at $35 a month, after his public plea for lower prices for the diabetes treatment, Biden said, but “there’s a lot more coming.”
The president’s signature Inflation Reduction Act (IRA) includes a provision penalizing drugmakers for charging prices that rise faster than inflation for people on Medicare.
“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 ahead of Biden’s speech.
The Department of Health and Human Services (HHS) on Wednesday released initial guidance on how it will conduct its Medicare prescription drug pricing negotiation process, another key IRA provision aimed at lowering drug costs, Rice said.
The list of drugs facing the inflation penalty includes AbbVie’s blockbuster arthritis drug Humira, Gilead Sciences Inc’s Car-T cancer therapy Yescarta, and Seagen Inc’s targeted cancer therapy Padcev, the White House said in a fact sheet.
Pfizer Inc had five drugs on the list while Gilead, Endo International Plc, Kamada Ltd, and Leadiant Biosciences each had two drugs on it. Johnson & Johnson and Roche had one each.
Shares of most of the drugmakers named closed close to flat, while Pfizer ended regular trading up nearly 1%.
Payments owed to Medicare will be in the form of a rebate. Those that fail to pay the rebate will face a penalty equaling 125% 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 those 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% that year. A third of those had price jumps of over 7.5%.