Trump Administration Wants To Cut Drug Prices By Eliminating Middlemen's Rebates

Alicia Farmer
February 3, 2019

The Trump administration says it is moving ahead with a plan to let patients directly receive prescription drug discounts negotiated behind-the-scenes between drugmakers, middlemen, and insurers.

The policy change was expected.

Romney is a member of the Senate Health, Education, Labor and Pensions Committee, which has oversight on healthcare issues, including drug pricing. Those companies, now largely owned by the biggest payers like CVS-Aetna's Caremark and UnitedHealth's Optum, however, say they play an important role in the pharmaceutical supply chain and end up protecting consumers and saving them in out-of-pocket costs.

Drugmakers don't provide discounts for all their medications, so the impact for consumers remains to be seen.

Health and Human Services Secretary Alex Azar speaks about proposed reforms to Medicare Part B drug pricing policies at the Brookings Institute in Washington in October 2018. Outlawing them would divert $29 billion in rebates now paid to insurers and pharmacy benefit managers into "seniors' pocketbooks at the pharmacy counter", Azar said. Instead, drug makers could offer discounts that are more directly passed onto consumers.

"Rebates have been a key driver in keeping premiums low for all Medicare beneficiaries, so any changes to the impact of rebates in the [Medicare Advantage] market will increase premiums, which will drive up costs for [the government] and the program as a whole", the company said in a statement to NPR.

Brian Henry, a spokesman for Cigna, said that rebates had helped keep premiums down overall.

The health insurance lobby nonetheless was quick to denounce the proposal. America's Health Insurance Plans criticized the administration's decision as "well-intentioned but misguided" and insisted that rebate savings go directly to consumers and save them on premiums and cost-sharing.

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In a statement, AHIP CEO Matt Eyles pointed the finger squarely at Big Pharma. Azar said that plans and PBMs can start to change their pricing structure now. In addition, many seniors on Medicare have to pay the full cost of some drugs. Implementing the proposed rule into the commercial space would congressional action.

Pharmaceutical Care Management Association CEO JC Scott echoed those sentiments.

The U.S. government is proposing changes to the way Medicare and Medicaid release prescription drugs to patients in a way that would result in greater savings on the part of the latter.

The move comes as the sector is rapidly evolving and major insurers have snapped up increasingly lucrative PBMs.

The Bipartisan Policy Center's chief medical officer was cautious. "I think it's a natural evolution of where this industry needs to go", she said.

Cigna just closed its acquisition of Express Scripts, the country's largest PBM, for $67 billion. He suggested the change could accelerate value-based programs with pharmaceutical companies. The proposed effective date of this regulatory modification is January 1, 2020, although HHS has sought comments regarding whether this allows sufficient time for parties to restructure existing arrangements. But the administration also acknowledged that premiums for Medicare's prescription drug coverage could rise by about $5 a month.

This article was reprinted from with permission from the Henry J. Kaiser Family Foundation. Part of the proposal included requiring the disclosure of list prices in television ads, increasing negotiated discounts in Medicare, banning pharmacy gag clauses, adopting real-time prescription benefit tools, and boosting low-priced generic and biosimilar competition. The proposal was co-authored with the HHS inspector general's office.

For the drug manufacturers, PhRMA President Stephen Ubl applauded the administration's proposal, saying it would lower patients' out-of-pocket costs and "fix the misaligned incentives in the system that now result in insurers and pharmacy benefit managers favoring medicine with high list prices".

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