Drugmakers will be required to pay rebates to the federal government for price increases in Medicare that exceed the rate of inflation beginning in 2025, the Centers for Medicare and Medicaid Services said Thursday.
The timeline is part of initial guidance the agency released for inflation-linked price hike limits, one of a set of reforms in last year’s Inflation Reduction Act that are aimed at reducing Medicare drug costs. The law also allows Medicare to negotiate prices for top-selling, single-source drugs and capped monthly insulin costs for the program’s participants.
“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.
The law requires drugmakers pay a penalty for Medicare drug price increases that rise faster than inflation, a limit that began in October for certain physician-administered Plan D drugs in Medicare and in January for certain self-administered Plan B drugs.
CMS will accept comments on the guidance until March 11 and revisions will be released in the fourth quarter. The agency said in a timeline it will tell drugmakers what rebates they owe for prices that exceeded the inflation rate in 2023 or 2024 by Sept. 30, 2025 for Plan B drugs and by Dec. 31, 2025 for Plan D drugs.
Drug manufacturers will receive a preliminary rebate report that will allow them to flag errors in calculations, which will be based on Medicare average sales prices over a 12-month period for Plan D drugs and over each quarter for Plan B drugs.
Later this spring, CMS is due to release initial guidance for its more wide-reaching reform — how it will negotiate prices for a first set of 10 drugs that will be published by September 2023 under a timeline released last month. CMS can negotiate prices for a total of 60 drugs that lack competition by 2029.
The drug industry has warned the law will have negative effects on research, and has the ear of some in the Republican party. Three GOP senators last year introduced a bill to repeal the law’s drug pricing provisions, but President Biden this week warned he would fight any attempts to roll back the law’s price reforms.
Meanwhile, Democratic lawmakers welcomed the latest rollout, which also adds limits to some Medicare participants’ copays for drugs starting April 1.
“I’m pleased to see CMS beginning this transformational Medicare policy to protect seniors from price gouging by drug companies,” Senate Finance Committee Chair Ron Wyden, D-Ore., said in a statement Thursday. “There have never been price gouging penalties in Medicare before, and I am confident that these policies are going to deliver real savings for Americans.”