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July 11, 2019

Why Trump just pulled his proposal to eliminate Rx drug rebates

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    The Trump administration has withdrawn its proposed rule to prohibit drugmakers from paying rebates to pharmacy benefit managers (PBMs) under federal health programs, a White House spokesperson confirmed Wednesday.

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    Background: HHS releases proposed rule on PBM rebates

    Drugmakers currently establish a price for their drugs and then negotiate with PBMs to reach an agreement on a discount for the products, which the drugmakers pay to PBMs on behalf of health insurers in the form of rebates. PBMs and insurers typically share the rebates, and have faced criticism for not passing those savings along to consumers.

    Administration officials have been critical of the rebates, and suggested the administration could look to the change the rebate system as part of broader efforts to lower prescription drug prices.

    HHS in January released a proposed rule that would have overhauled the existing drug rebate system. HHS' proposal would have altered safe harbor protections under the federal Anti-Kickback Statute so that they no longer allowed drugmakers to pay rebates tied to a percentage of a drug's list price to Medicare Part D plans, Medicaid managed care plans, and PBMs.

    Instead, HHS had proposed two new safe harbor provisions:

    • One that would have allowed PBMs and insurers to negotiate rebates with drugmakers as long as those rebates are shared directly with patients at the point of sale; and
    • Another that would have allowed PBMs to receive fixed fees for services provided on behalf of insurers.

    However, the Congressional Budget Office (CBO) in a report released in May projected total prescription drug costs in the United States would not decrease if CMS had finalized the proposed rule. CBO predicted prescription drug manufacturers under the proposed rule "would offer the renegotiated discounts in the form of chargebacks" instead of lowering drug list prices. Chargebacks are discounts only available for prescription drugs covered under Medicare Part D and Medicaid managed care, not the entire prescription drug market.

    CBO also predicted that drugmakers under the proposed rule "would withhold some of the discounts they previously negotiated that could no longer be used under the rule."

    Overall, CBO estimated that the proposed rule would have increased government spending by a total of $177 billion from 2020 to 2029, and would have increased Medicare spending by $170 billion and Medicaid spending by $7 billion over the next decade.

    Admin withdraws proposal

    According to Axios, White House spokesperson Judd Deere said, "Based on careful analysis and thorough consideration, [President Trump] has decided to withdraw the rebate rule." Deere added that the "administration is encouraged by continuing bipartisan conversations about legislation to reduce outrageous drug costs imposed on the American people, and … Trump will consider using any and all tools to ensure that prescription drug costs will continue to decline."

    The rebate proposal was a "centerpiece" of the administration's overall strategy to lower prescription drug prices, Politico reports. According to Axios, the proposed rule's withdrawal puts increased pressure on the administration to finalize other proposals to lower prescription drug prices, including a proposal to pilot a Medicare Part B drug pricing model designed to align Medicare payments with lower international prices.

    According to STAT News, HHS Secretary Alex Azar this week spoke with federal lawmakers to encourage them to finalize a legislative package to lower prescription drug costs. The administration has indicated that it is open to a Senate proposal that would place restrictions on prescription drug price increases within Medicare Part D, Axios reports.

    HHS spokesperson Caitlin Oakley said, "Azar is fighting alongside … Trump to lower prescription drug costs and protect America's seniors." She added that Trump and Azar "are taking bold action to end foreign free riding, examine how to safely import lower-cost prescription drugs, empower patients with meaningful transparency, and the list goes on" (Diamond/Cancryn, Politico, 7/11; Owens, Axios, 7/10; Facher, STAT News, 7/11).

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