Trump administration scraps drug rebate proposal; may target drugmakers

By PharmaCompass

2019-07-18

Impressions: 92 Article

Last week, the Trump administration scrapped its proposal that would have required health insurers to pass billions of dollars in rebates they receive from drugmakers to Medicare patients.

This was an ambitious plan to lower prescription medicine prices. The government had hoped that by eliminating rebates of 15 to 30 percent, or more, of a drug’s listed price, the prices would fall. It also delays fulfillment of Trump’s pledge to lower drug prices for consumers before the November 2020 Presidential elections.

The rebate rule was estimated by the nonpartisan Congressional Budget Office (CBO) to cost the government US$ 177 billion over the next 10 years. The CBO had also said it was likely drugmakers would not cut their prices because of the rule.

This means that pharmacy benefit managers (PBMs) like Cigna Corp and CVS Health Corp, which negotiate rebates with drugmakers on behalf of the government’s Medicare program, will continue to benefit from those discounts. Drug manufacturers pay the rebates to PBMs for getting their drugs covered by Medicare’s Part D prescription plan.

Health and Human Services Secretary Alex Azar said Trump decided to pull the proposal after concerns that it would cause insurance companies to increase premiums for seniors.

Last week, the Trump administration had received a setback when a federal judge in Washington DC struck down its rule that would have forced drug companies to disclose the list price of their drugs in television ads.

Trump had said last week that he’s preparing an executive order declaring a “favored nations clause” for drug prices, where the US will pay no more than the country with the lowest prescription drug prices. Last week, Trump had also signed an executive order designed to reform America’s kidney treatment industry, which could possibly save the government millions of dollars.

Analysts said Trump could make a push to lower drug prices by allowing Medicare to create an “international pricing index.” Therefore, drug companies may be in the direct path of Trump’s next big policy push to lower drug prices,

Azar mentioned that he is working with Trump on allowing the importation of cheaper drugs from other countries.

There are several reasons why the rebate reform may have been dropped. It was a complex system, and its effects were highly unpredictable and subject to debate. JP Morgan analyst Gary Taylor said in a note that political momentum had been building against the rebate rule “due to the perceived unintended windfall profits that might have accrued to pharmaceutical manufacturers.”

Moreover, stand-alone Part D plans have limited flexibility to absorb the removal of rebates. Besides, the proposal couldn’t address the commercial market.

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“ The article is based on the information available in public and which the author believes to be true. The author is not disseminating any information, which the author believes or knows, is confidential or in conflict with the privacy of any person. The views expressed or information supplied through this article is mere opinion and observation of the author. The author does not intend to defame, insult or, cause loss or damage to anyone, in any manner, through this article.”

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