WASHINGTON — Health and Human Services Secretary Alex Azar called on Congress Friday to upend the way drugs are paid for by “immediately” passing a law banning rebates that drug makers pay to insurers.

His push comes the morning after after HHS announced a policy proposal that would eliminate rebates in the Medicare program, which the department claims will lower the amount of money seniors spend on prescription drugs at the pharmacy. Though HHS estimates it will raise premiums in the program, it believes patients will ultimately save money.

“Congress has an opportunity to follow through on their calls for transparency, too, by passing our proposal into law immediately and extending it into the commercial drug market,” Azar said in a speech, according to prepared remarks.


His remarks, however, highlight a key tension underlying the proposal: whether or not HHS itself has the power to implement such a massive change without additional authority from Congress. Critics of the proposal, most notably in the pharmacy benefit manager industry, have suggested they would sue HHS over such a proposal on those grounds.

It’s unclear exactly how a law would be structured. HHS’ proposal modifies the regulations that govern the so-called Anti-Kickback Statute, an anti-fraud law that applies to government health programs like Medicare and Medicaid. Currently, the regulations specify that drug rebates are allowed. The regulation would ban them for the Medicare and some parts of Medicaid.

Nor is it clear yet how Congress will receive Azar’s entreaty. Some powerful lawmakers broadcast initial support for the proposal, but others have expressed reservation in the past.

Sen. John Cornyn, the powerful Texas Republican, said in a statement Thursday night that the HHS proposal “will be welcome relief to the millions across Texas and the country who struggle every day to afford lifesaving medicines” and that he looks “forward to working with the Administration on additional ways to help lower the cost of drugs and increase pricing transparency for consumers and patients.”

On Twitter, Sen. Chuck Grassley, the Iowa Republican who chairs the Finance Committee, which has jurisdiction over some drug pricing issues, said he was “still reviewing” the proposal but that the idea shows HHS is “serious [about] lowering health care costs for patients [and] taking tough steps needed for transparency [and] accountability even if drug [companies] or middlemen don’t like it.”

But Rep. Greg Walden (R-Ore.), the ranking member of the House Energy and Commerce Committee, previously raised concerns that the changes caused by the HHS rule could “ripple across the health care sector,” and called for a “robust regulatory impact analysis.”

The proposed HHS regulation would still allow pharmacy benefit managers, which negotiate rebates between drug makers and insurers, to charge fees to manufacturers for their services — and some health professionals caution that PBMs could just repackage rebates as fees, skirting around the intent rule.

“Manufacturer A can pay a much higher fixed fee than manufacturer B, to try to quote, bribe, or kickback the PBMs, so this is something that I think the administration should be vigilant about,” said Ge Bai, an accounting professor at the Johns Hopkins Carey Business School who specializes in the pharmaceutical supply chain.

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  • These PBM’s still have a few tricks up their sleeve . There’s the price spread, DIR fees, Waiting a week to update their computers prices when drugs do go up in price . Then there are all the commercial accounts where none of this comes into play and they can still charge their extortion …. I mean drug rebate fee to be on formulary. Have no fear , PBM’s will always be the MAFIA of the pharma industry !!!!

    • They are an organization underground. But here is why.

      These large PBMs 20 years ago were adjudicators, clinical guidance, and offered direction on financials. In that past twenty years they absorbed the specialty distribution channels handling the massive growth of biological and they took over all contracting for 90% of the nations insurers. The market place basically allowed multiple conflict of interests in healthcare become melded into one huge machine. The relationships that exist in this model are solid as granite and the good old boys will fight hard to not allow it to broken down. Transparency, routine audits, and reform watch dogs is a must. You don’t know where you can help the healthcare cost issue until you break down the silos that are thick in walls. Separation of these multiple functions inside the current PBM model is a must. Them once separate they should be monitored and evaluated separately.

  • So the PBMs will sue. Do they realize the can of worms they open when their business practices get laid bare in court (i.e., what % they pocketed vs. passing on to the patient)? That would not end well for them.

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