White House Abandons Rebate Rule Due to Medicare Spending

On Thursday, the White House backed down from its proposed rule that would have prohibited pharmacy benefit manager rebates because the rule would have raised seniors’ premiums and Medicare spending, according to major news sources

“Based on careful analysis and thorough consideration, the President has decided to withdraw the rebate rule,” confirmed Judd Deere, a White House spokesman told The Hill.

In January, Health and Human Services Secretary Alex Azar and Inspector General Daniel Levinson put forward a rule that sought to pass manufacturer’s discounts to the patients and increase transparency. The HHS rule would tear down the anti-kickback statute rebates which manufacturers pay to pharmacy benefit managers (PBMs) as well as part D plans and Medicaid managed care organizations. 

The rule endorsed fixed fee-for-service contracts between manufacturers and PBMs. Instead of seeking to please PBMs with rebates, the manufacturers would be looking to attract patients through discounts, HHS reasoned.

With pharmacy benefit manager rebates dissolved, the 26 to 30 percent discounts which PBMs usually receive would pass on to the patients. Discounts would have been negotiated in a way similar to cost-sharing methods such as co-insurance. The rule would have been particularly beneficial to seniors, the administration claimed.

“Every day, Americans—particularly our seniors—pay more than they need to for their prescription drugs because of a hidden system of kickbacks to middlemen. President Trump is proposing to end this era of backdoor deals in the drug industry, bring real transparency to drug markets, and deliver savings directly to patients when they walk into the pharmacy,” said HHS Secretary Azar at the time.

Health payers strongly opposed the rule when it was first considered.

“From the start, the focus on rebates has been a distraction from the real issue – the problem is the price,” Matt Eyles, president and chief executive officer of America’s Health Insurance Plans (AHIP), stated when the rule was first proposed. “Manufacturers have complete control over how drug prices are set. Already this year, more than three dozen drug makers have raised their prices on hundreds of medications. Insurance providers are part of the solution. We believe the Administration should go back to the drawing board and start over with this proposed rule, and instead take actions that will lower drug prices and hold drug-makers accountable for the prices they set.”

When estimates began to show the proposed rule could cost $200 billion in increased Medicare spending, the administration was divided, with Azar defending the proposal and Joe Grogan, chair of the Domestic Policy Council, opposing it, The Hill reported.

The president backed away from the rule due to the potential impact it could have on seniors’ premiums, Azar said to news sources.

"The president is deeply committed to protecting America's seniors," Azar explained. "He does not want any risk that our actions could cause seniors' premiums to increase." 

“The Trump administration is encouraged by continuing bipartisan conversations about legislation to reduce outrageous drug costs imposed on the American people, and President Trump will consider using any and all tools to ensure that prescription drug costs will continue to decline,” added Deere.

Abandoning the rebate rule is a victory for payers and PBMs and an omen to pharmaceutical manufacturers, The Hill suggested. The move signals that the president could favor other parts of his plan which more directly target manufacturers’ price-setting practices. 

A separate proposed rule, which is still being drafted, would establish the international pricing index (IPI) model for Medicare Part B Drugs. The model would sync American drug prices with international drug prices. 

In the advance notice of proposed rulemaking, CMS suggested “phasing down” Medicare Part B drug payments to meet international standards. It would give private sector vendors more negotiating power and set them up to compete with physicians and hospitals, the agency explained. 

Lastly, it would change the drug add-on payment from a percentage (4.3 percent) to a fixed dollar amount that reflects recent drug cost history.

CMS believes the potential gross financial impact on both Medicare fee-for-service and Medicare Advantage from 2020 to 2025 would be $21.7 billion saved. Medicaid would also save an estimated $1.6 billion. 

But when broken down into annual savings, some argue that the rule’s impact shaves off a “sliver” from total drug expenditures.

While that rule continued percolating, the administration faced another setback to the president’s healthcare blueprint earlier this week. A federal judge struck down the administration’s proposed drug pricing television advertisements rule and sent HHS back to the drawing board to increase drug price transparency.