WASHINGTON — The Trump administration on Thursday put forth a long-awaited proposal to eliminate certain rebates drug makers pay insurance companies in Medicare, a move it says will ultimately lower prescription drug prices — and one that stands to upend the complicated structure for how drugs are priced in the U.S.
“This proposal has the potential to be the most significant change in how Americans’ drugs are priced at the pharmacy counter, ever, and finally ease the burden of the sticker shock that millions of Americans experience every month for the drugs they need,” health secretary Alex Azar said in a statement.
HHS’ proposal would eliminate a legal provision that allows drug companies and pharmacy benefit managers to negotiate rebates in exchange for making it easier for patients to get access to certain drugs. But the proposal would explicitly allow drug companies and PBMs to negotiate rebates as long as the savings are passed directly to consumers at the pharmacy.
The amount of money patients might save depends on how drug companies, pharmacy benefit managers, and insurers respond to this proposal and change their pricing practices. For the first year, HHS cites a variety of estimates that range from Medicare beneficiaries saving $2.74 a month to spending an extra $1.25 a month. Meanwhile, the government might end up saving money or might not, depending on what companies do.
While the proposal technically only affects Medicare, it may have a sweeping impact on private plans as well. An HHS fact sheet released with the proposed regulation implies that, if pharmaceutical companies offer price reductions to private plans, they also have to offer those same price reductions to Medicare plans. That means that they couldn’t offer rebates in the private market unless they also offer those rebates to Medicare. And since the new rule would forbid Medicare rebates, it could, by that logic, prohibit rebates elsewhere. But HHS is also looking to Congress to implement this more widely.
“This could apply to pharmaceutical rebate agreements that are outside of federal health care programs or in the commercial market,” a senior HHS official told reporters shortly after the proposed rule was released. “But Congress has more power to state more clearly what they’d like to do here and we stand ready to work with them.”
It is the boldest of the Trump administration’s proposals to lower prescription drug prices to date, and it comes as policymakers across Washington, in the administration and on Capitol Hill, are increasingly eyeing drug pricing reforms as an area of potential consensus.
The policy proposal is also a major blow to the pharmacy benefit manager industry, which negotiates rebates off of drug companies’ list prices to lower the cost of the drug to the insurer. Those companies have long opposed efforts to upend how drugs are paid for in the United States, arguing that rebates help them save money for patients.
The Pharmaceutical Care Management Association, which represents PBMs in Washington, has previously said that HHS doesn’t have the authority to change the rebate system without an act of Congress.
“We are concerned … that eliminating the long-standing safe harbor protection for drug manufacturer rebates to PBMs would increase drug costs and force Medicare beneficiaries to pay higher premiums and out-of-pocket expenses, unless there is a viable alternative for PBMs to negotiate on behalf of beneficiaries,” PCMA wrote in a statement Thursday. When asked Thursday whether HHS had the legal authority to eliminate rebates, a PCMA spokesperson directed STAT to the group’s previous statement.
The drug industry lobby, PhRMA, expressed support for the proposal in a statement Thursday afternoon.
“We applaud the Administration for taking steps to reform the rebate system to lower patients’ out-of-pocket costs,” said PhRMA president and CEO Stephen Ubl, in a statement. He added, “This proposal would also fix the misaligned incentives in the system that currently result in insurers and pharmacy benefit managers … favoring medicines with high list prices.”
The proposal would not ban all price reductions in government health care programs. Some rebates in the Medicaid program are mandated by law, and would still apply if this proposal is adopted.
Additionally, the proposal would allow PBMs to continue to charge fees to drug companies. PBMs would be required to give insurers more information about their arrangements with drug companies, and would also be required to turn over this information to the government if HHS asks for it.
The proposed rule will be open for comments for 60 days, and, if implemented, would take effect on Jan. 1, 2020.