Trump administration proposes new rules that strip away many of the rebate deals between pharma and PBMs, pushing discounts to consumers

After threatening for the past 2 years to do something dramatic to change the steady upward trajectory of list drug prices and slash out-of-pocket costs, the Trump administration has just fired a broadside straight into one of the key drivers that has stoked public anger against the biopharma industry.

Alex Azar

HHS Secretary Alex Azar issued a release Thursday evening saying that the government will change the safe harbor provisions that allow drug companies to pay rebates to the pharmacy benefit managers that manage their therapeutics. That system of rebates has continued to shove up list prices while the revenue from drug portfolios has flattened or increased at only a fraction of what we’ve seen in previous years.

Instead, the Trump administration is proposing that the safe harbor provision will allow drug companies to hand discounts direct to consumers, so they get the direct benefit of the discounts that drug companies had been passing along to the PBMs like Express Scripts. In place of the rebates PBMs would earn a fixed price fee.

That should particularly advantage seniors on Medicare, said Azar. In fact, the anti-kickback rules are aimed directly at the publicly funded health plans in the US, but the rules would likely spread into the private insurance market given the market heft of Medicare and the Medicaid plans that would be affected. Also, if everyone knows what members of Medicare and Medicaid are being charged, then the whole opaque process around retail drug prices that’s existed for decades could presumably be eliminated or exposed.

The devil, as always in Washington DC, will be in the details. Here’s the full description of what the administration is proposing.

Rebates have long been a thorn in the side of industry critics, and increasingly the pharma companies themselves. These secret deals between drug makers and PBMs — which the government says amount to 30% of drugs’ list price — are used to arrange favorable positions on the formularies used to steer members to particular drugs. They also dictate the co-pays that are charged to millions of members.

For the pharma industry, which has been the target of growing public anger, the move will be welcomed as the attention shifts to PBMs.

Stephen Ubl, PhRMA CEO

“We applaud the Administration for taking steps to reform the rebate system to lower patients’ out-of-pocket costs,” noted PhRMA chief Stephen Ubl. “Our current health care system results in patients often paying cost-sharing based on the list price, regardless of the discount their insurer receives. We need to ensure that the $150 billion in negotiated rebates and discounts are used to lower costs for patients at the pharmacy.”

“This proposal would also fix the misaligned incentives in the system that currently result in insurers and pharmacy benefit managers (PBMs) favoring medicines with high list prices.”

“This historic action, combined with other administrative and legislative efforts on prescription drug pricing, is a major departure from a broken status quo that serves special interests and moves toward a new system that puts American patients first,” Azar said in a statement. “Democrats and Republicans looking to lower prescription drug costs have criticized this opaque system for years, and they could pass our proposal into law immediately.”

Next up: Will both parties be able to set aside their dramatic differences and reach a bipartisan deal? However this plays out, today’s proposal now takes center ring in the debate over drug prices.

There’s a lot more discussion to come.

Image: President Trump. Shutterstock

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