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HHS Proposal Reforms Drug Rebates to Reduce Patient Spending

The proposal will pass drug cost savings onto patients, not PBMs, to yield greater patient spending cuts.

patient spending drug costs

Source: Thinkstock

By Sara Heath

- HHS has proposed to eliminate drug kickbacks and rebates passed from manufacturer to pharmacy benefits manager (PBM), instead requiring those types of savings to be passed directly to patients. This is a part of the Department’s efforts to reduce out-of-pocket patient spending on drugs.

Specifically, the proposal would eliminate any kickbacks or rebates that drug manufacturers offer to PBMs.

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

“The proposed regulation would address a perverse incentive identified by the Department by expressly excluding from safe harbor protection under the Anti-Kickback Statute (AKS) rebates on prescription drugs paid by manufacturers to pharmacy benefit managers (PBMs), Part D plans, and Medicaid managed care organizations,” HHS explained in the proposal’s fact sheet.

These types of rebates can amount to up to 26 to 30 percent cost reductions in medications, HHS pointed out. And while the Trump Administration wants to see drug costs go down, they say those cost reductions need to be passed onto the patients.

“The proposal would create a new safe harbor protecting discounts offered to patients at the pharmacy counter,” HHS said. “Finally, the proposal would create new safe harbor protection for fixed fee services arrangements between manufacturers and PBMs.”

Ideally, these discounts will lower the overall list price of the medication, a move that should considerably cut patient drug spending, said HHS Secretary Alex Azar.

“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.

This proposal should lower the overall list price of a drug because it limits how much a PBM can benefit from a rebate. Typically, drug manufacturers and PBMs negotiate rebates as a percentage of a drug’s list price. To increase the rebate, the manufacturer will increase the cost of the drug.

While this benefits the manufacturer and PBM, it disadvantages the patient who bears some financial responsibility for the drug and Medicare as a whole.

Whether the patient is paying up to their deductible or they are paying a cost-sharing percentage for extraordinarily expensive specialty drugs, they are basing it off of the drug’s list price – not the price reflected after the PBM’s rebate.

This latest proposal will eliminate the PBM’s rebate, which disincentivizes any list price hikes. It will also offer rebates to patients themselves. Both of those moves are set to lower drug costs for patients, Azar said.

“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,” Azar noted.

“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. Democrats and Republicans looking to lower prescription drug costs have criticized this opaque system for years, and they could pass our proposal into law immediately.”

The proposal has already drawn industry responses, including from PhRMA, one of the nation’s largest drug lobbying groups.

This proposal would make great strides in reducing patient costs and ensuring they benefit from drug rebates, said PhRMA President and CEO Stephen J. Ubl.

“We applaud the Administration for taking steps to reform the rebate system to lower patients’ out-of-pocket costs,” Ubl said in a statement emailed to journalists. “Our current health care system results in patients often paying cost-sharing based on the list price, regardless of the discount their insurer receives. We need to ensure that the $150 billion in negotiated rebates and discounts are used to lower costs for patients at the pharmacy.”

Because the proposal would repair some of the drug pricing incentives manufacturers and PBMs currently benefit from, it would help patients with unique medication needs, such as those with chronic illness, Ubl added.

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