HHS on Nov. 20 finalized a rule to eliminate manufacturer drug rebates paid to pharmacy benefit managers and Medicare Part D plans.

Cheat sheet: Medicare Part D

According to Politico, drugmakers have cited rebates as one of the "unseen costs" that raise prescription drug prices. However, insurers, pharmacy benefit managers, and drug pricing advocates have argued that removing rebates takes away their ability to negotiate lower prices and control costs for consumers.

About the final rule

The final rule, which was originally proposed in 2019, excludes rebates that manufacturers typically pay to pharmacy benefit managers and Part D plans from safe harbor protections under the Anti-Kickback Statute. The final rule does not remove safe harbor protections for manufacturer rebates paid directly to Medicaid managed care organizations, meaning manufacturers can continue to offer those rebates to Medicaid MCOs.

In addition, the final rule creates a new safe harbor protection for discounts offered at the point-of-sale and for fixed-fee services arrangements between manufacturers and pharmacy benefit managers.

HHS said the final rule, which is scheduled to take effect Jan. 1, 2022, aims to create an incentive for drugmakers to lower their drug list prices and reduce out-of-pocket prescription drug spending by offering rebates that currently go to insurers and pharmacy benefit managers directly to Medicare beneficiaries.

HHS in a release said that "savings to patients may be nearly 30%" under the final rule because, "[i]n 2019, Part D rebates totaled $39.8 billion, representing an average discount of nearly 30% for brand drugs."

In contrast, CMS' actuaries have estimated that the final rule could cost the federal government up to $196 billion over ten years, because patients' savings could lead to increased use of drugs covered by Medicare Part D. However, HHS in the final rule noted that "the range of actuarial estimates for this rule range from $100 billion in reduced federal spending if more than 100% of rebates are converted into list price concessions and Part D plans exert greater formulary control, to $196 billion in increased federal spending, if manufacturers reduce price concessions in Part D. There is wide variation in the analyses conducted that makes it difficult to project with certainty the impact of the policy change on federal spending."

Final rule could be challenged in court

According to Politico, insurers are expected to challenge the final rule in court, citing a regulatory issue that would require HHS to first publish a new proposed rule and solicit public comment. Insurers traditionally have supported rebates, noting it gives them leverage to negotiate lower prices, Politico reports (Owermohle, Politico, 11/20; Wilkerson, Inside Health Policy, 11/20 [subscription required]; HHS final rule, 11/20).