Trump’s new rebate plan targets drug middlemen

Bloomberg

The Trump administration proposed ending a complex system of drug rebates that influence tens of billions of dollars in US pharmaceutical spending, a mo-ve that could upend the relationship between drugmakers and pharmacy benefits middlemen.
The proposal, a long-awaited part of the administration’s plan to target high list prices of drugs, would ban rebates paid by drugmakers to pharmacy benefit managers (PBMs) in government programs like Medicare.
Those rebates have been called anticompetitive by critics, who blame them for forcing many patients to pay more out of pocket. Under the administration proposal, rebates would instead be passed along directly to customers.
The measure, released by the Department of Health and Human Services, would roll back so-called safe-harbor protections for such rebates, which kept them from running afoul of federal antikickback laws. The plan isn’t final and will be subject to a 60-day period for public comment.
The changes are “potentially devastating to the current pharma ecosystem,” said Eric Coldwell, an analyst with Baird Equity Research. “The US health-care system is a sandcastle and the tide is coming in.”
Shares of major drug-plan providers fell. CVS Health Corp, which oversees drug benefits for more than 90 million Americans, fell 2.4 percent in late trading in New York, and Cigna Corp, which last year bought PBM giant Express Scripts, declined 1.4 percent.
Drugmakers pay rebates to insurers and PBMs in exchange for preferred status with those plans’ customers. Some of those rebates go towards insurance premiums, while the middlemen keep some for themselves. The pharmaceutical industry has said PBMs prefer higher-priced drugs so they can negotiate bigger rebates and pocket more of the money.
In a statement announcing the proposal, HHS Secretary Alex Azar blasted PBM rebates as “a hidden system of kickbacks to middlemen” that increases drug costs for Americans every day.
“This proposal has the potential to be the most significant change in how Americans’ drugs are priced at the pharmacy counter, ever, and finally ease the burden of the sticker shock that millions of Americans experience every month for the drugs they need,” Azar said in a statement.
Reporting by Bloomberg News over the past three years has examined a variety of pricing practices at PBMs that have been criticized by politicians and others for making it hard to tell where the money is going. In addition to the debate over rebates, PBMs also are under scrutiny over a practice known as spread pricing, a contractual arrangement that allows PBMs to pay pharmacies one price for a generic drug while charging higher prices to their health plan customers.
CVS said drugmakers were to blame for drug costs. “While PBMs have become a convenient target in the fight against skyrocketing drug costs, in reality they serve as a last line of defense for the consumer,” the company said in a statement.
Brian Henry, a spokesman for Cigna, said that rebates had helped keep premiums down overall. “It is short-sighted to look at one component of our offering as having a disproportionate impact on our business model,” Henry said in an email.
Under the proposal, safe-harbor protection would be eliminated for rebates drugmakers pay to pharmacy-benefit managers, Medicare Part D plans and Medicaid managed-care organizations. A new safe harbor would be created for rebates on drug discounts offered directly to patients, as well as fixed-fee service arrangements between drugmakers and PBMs.