The U.S. government will begin imposing penalties in 2025 on drug companies that charge its Medicare program prices that rise faster than inflation, the Centers for Medicare & Medicaid Services said on Thursday.
The agency issued initial guidance on how it will implement a provision in President Joe Biden’s signature Inflation Reduction Act that penalizes drugmakers for raising prices faster than inflation.
“The Medicare Prescription Drug Inflation Rebate Program will require drug companies with excessive increases in drug prices to pay rebates to Medicare,” CMS Administrator Chiquita Brooks-LaSure said in a statement.
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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% of the rebate amount.
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.
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%.
CMS said it would consider comments received by March 11 for revised guidance it plans to issue later this year.
Starting April 1, consumer out-of-pocket costs will be based on the inflation adjusted drug price.