WashU Expert: New Trump drug policy proposal ambitious, but is it feasible?

Trump proposal would upend drug industry by overhauling rebates in Medicare

Trump proposal would upend drug industry by overhauling rebates in Medicare

The rebates manufacturers pay to pharmacy benefit managers would be viewed as illegal kickbacks under the proposed rule.

The potential implications of the Proposed Rule extend beyond the context of federal Anti-Kickback Statute compliance to drug reimbursement in the United States more broadly.

"This historic action, combined with other administrative and legislative efforts on prescription drug pricing, is a major departure from a broken status quo that serves special interests and moves toward a new system that puts American patients first". These rebates are most commonly paid to pharmacy benefit managers (PBMs) in exchange for preferred placement on the insurance plan's drug formulary (i.e. the patient will be more likely to take that drug than another because it will be placed on a lower tier with lower cost-sharing). Drugmakers make payments to PBMs (known as rebates) to get them to include a particular drug on their lists of which prescriptions a patient can take.

While these rebate payments - which act as incentives to pick one drug to cover over a competitor - may sound a lot like a kickback, they're technically protected from the Anti-Kickback Statute.

A PBM is a third-party entity that manages drug benefits for health plans.

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

Fixed fee payments from manufacturers to PBMs for the services that PBMs provide those manufacturers.

The healthcare industry is divided on the proposal.

In theory, by scrapping the back-end rebate, drug companies will be incentivized to lower their list prices on the front end, a senior HHS official told reporters on a Thursday press call.

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Drugmakers now pay out more than $100 billion in rebates annually. "Nothing stands in the way of pharmacy benefit managers skating where the puck will be even sooner by changing their contracts", he said.

Cigna just closed its acquisition of Express Scripts, the country's largest PBM, for $67 billion.

In its Q4 report, UnitedHealth Group said its PBM, OptumRx, grew revenues by 9.1% for the year to almost $70 billion.

To be sure, there's still a fair amount to be worked out. 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. And it's not clear how the new regulation would affect the health-insurance plans provided by employers to their workers, because it doesn't directly apply to those health plans.

The reduction in price may not involve a rebate, as defined in 42 C.F.R. 1001.952 (h), unless the full value of the reduction in price is provided to the dispensing pharmacy through a chargeback (or a series of chargebacks), or the rebate is required by law.

PBMs "concerned": JC Scott, president and CEO of the Pharmaceutical Care Management Association (PCMA), which represents PBMs, released a statement saying his group is "concerned" eliminating the safe harbor for PBM rebates could ultimately lead to higher drug costs "unless there is a viable alternative for PBMs to negotiate on behalf of beneficiaries". If finalized, the industry will have 60 day to implement. "We are not middlemen - we are your bargaining power, working hard to negotiate lower prices with drug makers".

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 focus on rebates has been a distraction from the real issue - the problem is the price", Eyles said in a statement.

Consumers who don't need expensive drugs every month could see insurance costs go up slightly without getting the benefits of lower out-of-pocket expense for purchased drugs. "And. removing some of the current gaming where plans/PBMs have an incentive to favor heavily rebated drugs over drugs with lower overall prices would be positive for consumers and for the system as a whole", said Jack Hoadley, PhD, of the Georgetown University Health Policy Institute, in an email to MedPage Today.

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