Trump Administration Officials Propose New Rule to Lower Drug Prices By Passing Rebates on to Patients

February 4, 2019

 

Last week, the Trump administration announced a new proposal to require pharmacy benefit managers (PBMs) and heath insurance companies to give consumers the discounts that they get on prescription drugs, a sweeping reform that could substantially lower drug costs for patients.

 

Currently drug companies pay billions of dollars to PBMs to increase use and sales of their medicines, and to ensure that specific drugs are placed on formularies (official lists of medicines that have the greatest value and may be prescribed). These sums, known as rebates, are secretly negotiated between drug companies and PBMs such as Express Scripts, Optum, and CVS, who administer prescription drug plans for insurance companies and employers. The rebates are usually a percentage of the list prices set by drug manufacturers. Under this new proposal, those rebates would be considered illegal kickbacks. The proposal would impact Medicare, not private plans.

 

In a briefing call with reporters, Secretary of Health and Human Services Alex Azar said, "The current rebate-based system rewards higher list prices, enriches middlemen, and drives up patients' costs. We are taking action to encourage the industry to shift away from the opaque rebate system and provide true discounts to patients at the point of sale." He stated that drug rebates are on average 26 to 30% of a drug's list price, and the proposed rule would pass those rebates directly on to consumers and lead to big decreases in drug prices at pharmacies. Azar told the press that patients could see reductions of 30% in their out-of-pocket costs for insulin and for drugs to treat arthritis, high cholesterol, and other diseases.

 

Rebates currently account for $150 billion annually in discounts in the prescription drug market. And the current system encourages drug companies to set high list prices because PBMs ask for (or demand) rebates, in order for them to include the medicines in the list of drugs they cover. The proposal could also made the confusing and secretive drug pricing system more transparent, because consumers would see the discounted prices negotiated by the PBMs.

 

Several stakeholders, including drug companies, have welcomed the idea, while insurance companies and PBMs attacked it, warning that it would raise prices and premiums. And several Democrats are skeptical. But if this rule is implemented, it could substantially lower drug prices and help consumers. PBM rebates have contributed to higher drug costs, and the plan would eliminate a powerful incentive that drives up prices. Drug companies and PBMs could still negotiate rebates, but the discounts would have to be passed on to consumers.

 

Additionally, while the planned rule technically only applies to Medicare, it could affect rebates in the broader prescription drug market. This announcement is the Trump administration's boldest proposal to lower drug costs, and if it is successfully enacted, consumers will greatly benefit.

 

PBMs and other lobbies are already fighting back. PCMA, the main PBM lobbying group, has previously claimed that the Department of Health and Human Services does not have the authority to make this change.  Almost everyone else disagrees. The rule will be formally published on February 6th, 2019 and the public will have sixty days to comment on this proposal. The administration will then consider the comments and can issue the final ruling with the force of law.

 

The Trump administration's proposed rule to require passing rebates on to consumers is excellent news for patients, advocates, our drug pricing system, and anyone who supports lower drug costs. Advocates should write comments in support of the plan and urge legislators and other elected officials to support it as well, in order to ensure Americans pay lower drug prices.

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