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The Trump administration just proposed a ban on a little-known practice in the pharmaceutical industry that's been blamed for high drug prices

Lydia Ramsey
* The Trump administration just proposed a new rule that could bring down the cost of prescription drugs for patients. * The Department of Health and Human Services wants to ban some payments, called rebates, between drugmakers and middlemen. * Rebates are negotiated between middlemen called pharmacy benefit managers and drugmakers, and are linked to individual drugs. They're usually passed along to health plans, but don't always make it to the patients taking the drugs. * These rebates have historically been protected from the Anti-Kickback Statute. * * * The Trump administration just made a big move against a little-known pricing practice that the pharmaceutical supply chain depends on. On Thursday, the Department of Health and Human Services (HHS) said it's proposing a rule that would effectively ban the use of rebates for pharmaceutical drugs. HHS said the move is designed to lower the cost of prescription drugs for patients, a major goal for the administration. "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," HHS Secretary Alex Azar said in a statement. Drugmakers pay out more than $US100 billion in rebates annually. Rebates are a big business for pharmaceutical middlemen, otherwise known as pharmacy benefit managers (PBMs), such as Express Scripts, CVS Caremark, and OptumRx. Cigna, which owns Express Scripts, and CVS Health, which operates Caremark, both fell 3% in after-hours trading Thursday. UnitedHealth Group, which owns OptumRx, fell 1% after-hours. 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. That would no longer be the case under the new proposed rule. Instead, the protection would apply to discounts given at the pharmacy counter directly to patients. Drugmakers would also be able to pay PBMs a fixed fee for their services. Read more: The Trump administration has a little-known practice in the pharma industry in its crosshairs To be sure, there's still a fair amount to be worked out. It's a proposed regulation change, which means there will still be time for feedback from the industry, and the final rule could be different. And it's not clear just how far the new regulation would extend, particularly its effect on the health-insurance plans provided by employers to their workers. Generally, eliminating the rebates could increase the cost of health insurance because rebates right now are often kept by health-insurance companies. The biggest benefit would be to people who need lots of expensive prescription medicines, particularly if they have health-insurance plans that require them to pay a fixed percentage of the cost of their drugs. JC Scott, the president of the Pharmaceutical Care Management Association, the lobbying group that represents PBMs said that while he's been encouraged by proposals that use PBMs to increase competition and reduce cost, he has concerns about making changes to the protections given to rebates. "We are concerned, however, that eliminating the long-standing safe harbour protection for drug manufacturer rebates to PBMs would increase drug costs and force Medicare beneficiaries to pay higher premiums and out-of-pocket expenses, unless there is a viable alternative for PBMs to negotiate on behalf of beneficiaries," Scott said. * Read more: * Everyone wants a piece of the drug industry and it's one reason prices are rising so fast * The Trump administration has a little-known practice in the pharma industry in its crosshairs * The FDA commissioner just laid out how 'everybody wins' in the US healthcare system except the patients * No one could explain why this college student saw the price of his life-saving diabetes medication more than double, and it reveals a disturbing problem with the US healthcare system
  • The Trump administration just proposed a new rule that could bring down the cost of prescription drugs for patients.
  • The Department of Health and Human Services wants to ban some payments, called rebates, between drugmakers and middlemen.
  • Rebates are negotiated between middlemen called pharmacy benefit managers and drugmakers, and are linked to individual drugs. They're usually passed along to health plans, but don't always make it to the patients taking the drugs.
  • These rebates have historically been protected from the Anti-Kickback Statute.

The Trump administration just made a big move against a little-known pricing practice that the pharmaceutical supply chain depends on.

On Thursday, the Department of Health and Human Services (HHS) said it's proposing a rule that would effectively ban the use of rebates for pharmaceutical drugs. HHS said the move is designed to lower the cost of prescription drugs for patients, a major goal for the administration.

"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," HHS Secretary Alex Azar said in a statement.

Drugmakers pay out more than $US100 billion in rebates annually. Rebates are a big business for pharmaceutical middlemen, otherwise known as pharmacy benefit managers (PBMs), such as Express Scripts, CVS Caremark, and OptumRx. Cigna, which owns Express Scripts, and CVS Health, which operates Caremark, both fell 3% in after-hours trading Thursday. UnitedHealth Group, which owns OptumRx, fell 1% after-hours.

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.

That would no longer be the case under the new proposed rule. Instead, the protection would apply to discounts given at the pharmacy counter directly to patients. Drugmakers would also be able to pay PBMs a fixed fee for their services.


Read more:
The Trump administration has a little-known practice in the pharma industry in its crosshairs

To be sure, there's still a fair amount to be worked out. It's a proposed regulation change, which means there will still be time for feedback from the industry, and the final rule could be different. And it's not clear just how far the new regulation would extend, particularly its effect on the health-insurance plans provided by employers to their workers.

Generally, eliminating the rebates could increase the cost of health insurance because rebates right now are often kept by health-insurance companies. The biggest benefit would be to people who need lots of expensive prescription medicines, particularly if they have health-insurance plans that require them to pay a fixed percentage of the cost of their drugs.

JC Scott, the president of the Pharmaceutical Care Management Association, the lobbying group that represents PBMs said that while he's been encouraged by proposals that use PBMs to increase competition and reduce cost, he has concerns about making changes to the protections given to rebates.

"We are concerned, however, that eliminating the long-standing safe harbour protection for drug manufacturer rebates to PBMs would increase drug costs and force Medicare beneficiaries to pay higher premiums and out-of-pocket expenses, unless there is a viable alternative for PBMs to negotiate on behalf of beneficiaries," Scott said.