A new proposal from the Trump administration is targeting secretive rebates between drug manufacturers, insurers and pharmacy benefits managers as a way to lower drug prices for Medicare.
A proposed rule released Thursday would scale back the legal protections and eliminate some of those rebates. The proposal could completely upend the way prescription drugs are purchased.
According to the Department of Health and Human Services, the proposal would lower prescription drug prices and out-of-pocket costs by encouraging manufacturers to pass discounts directly on to patients at the point of sale.
“This proposal has the potential to be the most sweeping change to how Americans’ drugs are priced at the pharmacy counter, ever, by delivering discounts directly to patients at the pharmacy counter and bringing much-needed transparency to a broken system,” HHS Secretary Alex Azar said in a statement.
“This proposal aims to change the incentives in our system that reward list price increases,” Azar added.
According to HHS, prescription drug rebates amount to 26 to 30 percent of a drug’s list price on average. The proposal would allow those rebates to be passed on directly to patients and would be reflected in what they pay at the pharmacy counter.
The proposed rule is part of the administration’s efforts to bring down the costs of prescription drugs and comes as both parties in Congress are putting pressure on the drug industry.
Generally, a drug company pays a rebate so a pharmacy benefit manager — the third-party administrators of prescription drug programs — will make its product the only one of its kind on the list approved for reimbursement or so that the co-pay for its product is less than the co-pay of competing products.
Trump administration officials have argued that if the federal anti-kickback law that protects such rebates were changed, it could help increase competition and make drugs more affordable.
Critics argue the savings from the rebates aren't passed on to consumers. Insurers say they spread around the savings from discounts to lower overall premiums.
The change could have an enormous impact on the pharmacy benefit manager industry, and the proposal is almost certainly going to result in intense pressure on the administration from the PBM lobby.
"Pharmacy benefit managers are part of the solution to high cost prescription drugs. Drugmakers alone set and raise prices," Pharmaceutical Care Management Association (PCMA) President and CEO JC Scott said in a statement.
"We are concerned ... that eliminating the long-standing safe harbor protection for drug manufacturer rebates to PBMs would increase drug costs and force Medicare beneficiaries to pay higher premiums and out-of-pocket expenses," Scott said.
However, when asked about potential premium increases, a senior HHS official was dismissive.
"This seems to be the knee jerk reaction [from the PBM industry]," the official told reporters Thursday. "[Medicare] Part D premiums are not the problem, it’s the out of pocket costs seniors face at the pharmacy."
The HHS official said eliminating rebates would force companies to compete to lower their sticker prices. However, there's no requirement in the rule that drug companies lower their list prices.
The Pharmaceutical Research and Manufacturers of America (PhRMA) praised the proposal.
“We applaud the Administration for taking steps to reform the rebate system to lower patients’ out-of-pocket costs. Our current health care system results in patients often paying cost-sharing based on the list price, regardless of the discount their insurer receives. We need to ensure that the $150 billion in negotiated rebates and discounts are used to lower costs for patients at the pharmacy," PhRMA president and CEO Stephen J. Ubl said in a statement.
The proposed rule will be open for comments for 60 days, and, if implemented, would take effect on Jan. 1, 2020.
Updated at 5:33 p.m.