Drugmakers Face Penalties for Price Hikes Above Inflation
Drugmakers Face Penalties for Price Hikes Above Inflation Advocacy
Beginning next year, companies that market both , which beneficiaries buy at the pharmacy, and Part B drugs, which are typically administered in doctor’s offices, will face penalties if they increase prices more than the rate of inflation. The rebates the companies owe will be the amount they raised a drug’s price above what the price would have been if it had been raised at or less than inflation, multiplied by what Medicare paid for all sales of that drug. The U.S. Department of Health and Human Services (HHS) will regularly look at prescription drug price increases. Then the HHS secretary will report to manufacturers what rebates they owe. The companies will have 30 days to pay Medicare. Drugmakers that don’t comply initially will have to pay a penalty that’s 125 percent of the rebate they owe the program. Join today and save 25% off the standard annual rate. Get instant access to discounts, programs, services, and the information you need to benefit every area of your life. This provision “is going to discourage drug companies from making those big annual price increases that often exceed inflation,” says Leigh Purvis, AARP’s director of health care costs and access, and coauthor of AARP’s “Rx Price Watch” report, which has tracked the trajectory of pharmaceutical prices since 2006. The found that in 2020, prices for 260 widely used medications increased 2.9 percent while the general rate of inflation was 1.3 percent. The report also found, for example, that between 2015 and 2020 the annual price of Victoza, a diabetes medication, increased by 42 percent, with the price of a year’s supply rising from $7,936 to $11,300. During that same period the price of Lyrica, used to treat fibromyalgia, increased by 47 percent — from $5,827 a year to $8,562. According to a recent Kaiser Family Foundation report, from 2019 to 2020, the prices of half of all drugs covered by Medicare increased more than the rate of inflation. And among those drugs with price increases above even the modest 1 percent inflation in effect before the recent inflation surge, one-third had price increases of 7.5 percent or more. The data did show that the average price increases in 2020 represented the slowest average annual hike since 2006, something Purvis attributed to recent legislative efforts at the state and federal levels to combat high drug prices. Some analysts have predicted that the rebate provision will lead Big Pharma companies to set higher prices for new drugs than they would have before the crackdown on price increases included in the Inflation Reduction Act. But there is a lot of evidence, Purvis says, that drugmakers were “already heading in that direction.” A study by the Journal of the American Medical Association found that between 2008 and 2021, average initial launch prices for U.S. prescription drugs grew 20 percent per year. “This is an important first step,” Purvis said of the inflation-based penalty provision. “Launch prices are likely the next big battle.” Dena Bunis covers Medicare, health care, health policy and Congress. She also writes the Medicare Made Easy column for the AARP Bulletin. An award-winning journalist, Bunis spent decades working for metropolitan daily newspapers, including as Washington bureau chief for the Orange County Register and as a health policy and workplace writer for Newsday.
Cancel You are leaving AARP.org and going to the website of our trusted provider. The provider’s terms, conditions and policies apply. Please return to AARP.org to learn more about other benefits. Your email address is now confirmed. You'll start receiving the latest news, benefits, events, and programs related to AARP's mission to empower people to choose how they live as they age. You can also by updating your account at anytime. You will be asked to register or log in. Cancel Offer Details Disclosures
Drugmakers Face Penalties for Price Hikes Above Inflation
New law requires companies to provide rebates to Medicare for excessive increases
Getty Images One of the first provisions of the — designed to help lower prescription drug prices — that will take effect is the requirement that pharmaceutical companies that raise the price of their products more than the rate of general inflation will have to pay Medicare a rebate for those outsize price hikes.Beginning next year, companies that market both , which beneficiaries buy at the pharmacy, and Part B drugs, which are typically administered in doctor’s offices, will face penalties if they increase prices more than the rate of inflation. The rebates the companies owe will be the amount they raised a drug’s price above what the price would have been if it had been raised at or less than inflation, multiplied by what Medicare paid for all sales of that drug. The U.S. Department of Health and Human Services (HHS) will regularly look at prescription drug price increases. Then the HHS secretary will report to manufacturers what rebates they owe. The companies will have 30 days to pay Medicare. Drugmakers that don’t comply initially will have to pay a penalty that’s 125 percent of the rebate they owe the program. Join today and save 25% off the standard annual rate. Get instant access to discounts, programs, services, and the information you need to benefit every area of your life. This provision “is going to discourage drug companies from making those big annual price increases that often exceed inflation,” says Leigh Purvis, AARP’s director of health care costs and access, and coauthor of AARP’s “Rx Price Watch” report, which has tracked the trajectory of pharmaceutical prices since 2006. The found that in 2020, prices for 260 widely used medications increased 2.9 percent while the general rate of inflation was 1.3 percent. The report also found, for example, that between 2015 and 2020 the annual price of Victoza, a diabetes medication, increased by 42 percent, with the price of a year’s supply rising from $7,936 to $11,300. During that same period the price of Lyrica, used to treat fibromyalgia, increased by 47 percent — from $5,827 a year to $8,562. According to a recent Kaiser Family Foundation report, from 2019 to 2020, the prices of half of all drugs covered by Medicare increased more than the rate of inflation. And among those drugs with price increases above even the modest 1 percent inflation in effect before the recent inflation surge, one-third had price increases of 7.5 percent or more. The data did show that the average price increases in 2020 represented the slowest average annual hike since 2006, something Purvis attributed to recent legislative efforts at the state and federal levels to combat high drug prices. Some analysts have predicted that the rebate provision will lead Big Pharma companies to set higher prices for new drugs than they would have before the crackdown on price increases included in the Inflation Reduction Act. But there is a lot of evidence, Purvis says, that drugmakers were “already heading in that direction.” A study by the Journal of the American Medical Association found that between 2008 and 2021, average initial launch prices for U.S. prescription drugs grew 20 percent per year. “This is an important first step,” Purvis said of the inflation-based penalty provision. “Launch prices are likely the next big battle.” Dena Bunis covers Medicare, health care, health policy and Congress. She also writes the Medicare Made Easy column for the AARP Bulletin. An award-winning journalist, Bunis spent decades working for metropolitan daily newspapers, including as Washington bureau chief for the Orange County Register and as a health policy and workplace writer for Newsday.
Also of Interest
Cancel You are leaving AARP.org and going to the website of our trusted provider. The provider’s terms, conditions and policies apply. Please return to AARP.org to learn more about other benefits. Your email address is now confirmed. You'll start receiving the latest news, benefits, events, and programs related to AARP's mission to empower people to choose how they live as they age. You can also by updating your account at anytime. You will be asked to register or log in. Cancel Offer Details Disclosures