U.S. to Impose Inflation Penalties on Drugs

The White House announced on Wednesday that it would apply inflation penalties to the first batch of 27 drugs. Reuters reported that the move seeks to reduce costs for Medicare beneficiaries by between $2 and $390 per average dose.

During his speech in Las Vegas Wednesday afternoon, President Joe Biden said his administration is making significant efforts to reduce prescription drug prices.

The Inflation Reduction Act, signed by Biden, establishes penalties for drug companies that raise the prices of their products by more than the rate of inflation. Especially drugs required by people with disabilities or adults over the age of 65 enrolled in the Medicare program. The reduction of drug costs, moreover, is part of the priorities of the Democrats in Congress.

“Starting on April 1, Medicare beneficiaries will pay lower coinsurance for Part B drugs that raise prices faster than inflation,” White House spokeswoman Susan Rice said at a press conference.

The domestic policy advisor also announced that the Department of Health and Human Services (HHS) would issue initial guidance on how the Medicare prescription drug negotiation process will work.

Among the drugs on the price reduction list is Humira, a prescription for the treatment of arthritis manufactured by AbbVie Inc. Likewise, Yescarta, a Car-T cancer therapy produced by Gilead Sciences Inc. and Padcev, the cancer therapy from Seagen Inc. laboratory.

The laboratories with the most drugs subject to scrutiny and sanctions if they raise prices above the inflation index are Pfizer Inc, Endo International, Kamada Ltd, and Leadiant Biosciences—as well as Johnson & Johnson and Roche.

The government’s announcement immediately affected the share prices of AbbVie and Gilead, which fell by 0.7%, while those of J&J were down 0.2%, and Seagen lost 0.1%.

The shares that managed to rise slightly during the day were those of Pfizer, with 0.2%. Any of these laboratories that increase the prices of their drugs above the inflation rate will have to pay the Medicare program the difference.

This will be in the form of reimbursement. Companies that refuse to pay will face penalties equal to 125% of the rebate amount. While the rebates will be billed by the government starting in 2025, Medicare will begin the cost reduction policy for its enrollees in April.

The list of drugs with inflation-reduced prices will be updated quarterly.

As the U.S. imposes inflation penalties on drugs, it’s crucial for startups to understand financial management to navigate these economic changes.

Santiago Contreras is a Venezuelan professional journalist and writer. He has a degree in economic journalism from the Universidad de los Andes and a master's degree in Communication in Organizations from the Complutense University of Madrid. He regularly writes on various topics, including economics, finance, and cryptocurrency, for various international media outlets.