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Trump administration proposal takes aim at drug rebates

  • The Trump administration on Thursday unveiled a new plan aimed at recasting the role prescription drug rebates play in Medicare, proposing to do away with certain price reductions offered by drugmakers to pharmacy benefit managers, Part D private insurance plans and Medicaid managed care organizations. 
  • The proposed rule would exclude these rebates from currently provided legal protection under the Anti-Kickback Statute. Instead, the administration’s proposal would create new legal safe harbors for discounts given directly to patients paying for drugs at the pharmacy counter, as well as for fixed feeagreements between manufacturers and PBMs. ?
  • The administration hopes the moves will reduce out-of-pocket costs for patients paying for drugs, and lower Part D spending overall. ?”This proposal has the potential to usher in the most significant change in how Americans’ drugs are priced at the pharmacy counter, ever,” said Health and Human Services Secretary Alex Azar in a Jan. 31 statement. 

HHS officials cast this latest policy action as a major step in the Trump administration’s plans to address prescription drug costs, building on previous moves from last year. 

By targeting rebates, the administration hopes to shift away from a system increasingly seen to encourage drugmaker price hikes as a means of paying larger rebates to insurance companies and PBMs.

Rather than lowering patient out-of-pocket costs, the chief purpose of rebates has become securing favorable drug coverage — an effect HHS called “pernicious” in a fact sheet released alongside the proposed rule.

Currently, pharmaceutical companies pay rebates as a percentage of a drug’s list price, a discount that payers then can spread around to lower costs for all members of an insurance plan. On average, the net price of a drug after rebates is between 26% to 30% less than the list price set by drugmakers, HHS said. 

One major problem — and a central part of HHS’s rationale for this plan — is that this system doesn’t necessarily reduce patient out-of-pocket costs for any given drug. 

A patient paying through a deductible, for example, will pay a drug’s list price, while co-insurance rates are typically set as a percentage of a drug’s list price even if a discount is paid by a drugmaker. 

One quarter of Part D plans require co-insurance on preferred branded drugs, while “almost all” use co-insurance on non-preferred products, HHS said. 

In some irony, the administration’s proposal coincides with an argument increasingly made by drugmakers: that the rebates they pay aren’t benefiting patients. 

“We need to ensure that the $150 billion in negotiated rebates and discounts are used to lower costs for patients at the pharmacy,” said PhRMA in a statement on the proposed rule

Even as many drugmakers continue to increase their products’ list prices, some major companies now predict net selling prices in the U.S. to fall in 2019.

Slower net price increases due to higher rebating doesn’t discount the fact that medicines are launched at increasingly higher costs, however. And with more Americans covered by higher deductible plans, patients can be exposed to the still increasing list prices. 

America’s Health Insurance Plans, a trade group representing insurers, criticized the proposed rule as a distraction from this reality, saying in a statement the plan would undermine its ability to extract savings.

“Projections show that over the next decade, we will save consumers and taxpayers more than $650 billion on drug benefit costs,” the group said. “We cannot achieve those savings if our leverage and negotiating power is weakened through well-intentioned but misguided actions like this proposed rule.” 

Shares in insurance companies, including CVS, UnitedHealth Group and Cigna, fell in post-market trading Thursday. 

The Pharmaceutical Care Management Association, a trade group for PBMs, sounded a note of concern that the plan would raise premiums for patients covered under Part D. 

A senior HHS official, however, played down this potential impact, indicating on a Thursday call with reporters that actuarial analyses found Part D premiums could go up on average $3 to $5 per member per month. 

The proposed rule does acknowledge that the rule’s benefits would accrue to beneficiaries who use drugs most often, particularly expensive ones. For most, decreases in out-of-pocket costs may not offset the expected rise in premiums.

Drug rebates in commercial insurance would not be directly impacted, though the proposed rule could carry an indirect effect. 

“As a legal matter, this would not impact directly commercial business,” said a senior official at HHS’ Office of Inspector General on a call with reporters Thursday. 

“But there would be situations that if you offer something to a commercial plan but not Medicare and Medicaid, there would be some implications,” the official added. “Folks on the commercial side will need to be aware of this.”

The proposed rule will be out for public comment for 60 days, after which HHS would need to finalize the policy.

Under the current proposal, the changes to the Anti-Kickback Statute would take effect January 1, 2020, while the new safe harbors envisioned would become effective 60 days after the final rule is published in the Federal Register.