January 31, 2019
Trump Administration Proposes to Lower Drug Costs by Targeting Backdoor Rebates and Encouraging Direct Discounts to Patients
On Thursday, Health and Human Services Secretary Alex Azar and Inspector General Daniel Levinson proposed a rule to lower prescription drug prices and out-of-pocket costs by encouraging manufacturers to pass discounts directly on to patients and bringing new transparency to prescription drug markets.
“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 Secretary Azar.
“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.”
“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.”
The HHS proposal would expressly exclude from safe harbor protection under the Anti-Kickback Statute rebates on prescription drugs paid by manufacturers to pharmacy benefit managers (PBMs), Part D plans and Medicaid managed care organizations.
It would create a new safe harbor for prescription drug discounts offered directly to patients, as well as fixed fee service arrangements between drug manufacturers and PBMs. The proposal would also provide a historic new level of transparency to a system that has been shrouded in secrecy for decades.
Under the proposed rule, prescription drug rebates that today amount to, on average, 26 to 30 percent of a drug’s list price may be passed on directly to patients and reflected in what they pay at the pharmacy counter. By encouraging negotiated discounts that are reflected in cost-sharing methods like co-insurance, used for many expensive drugs in Medicare Part D, the proposal is projected to provide the greatest benefits to seniors with high drug costs.
The proposal would also address the most significant incentive drug manufacturers cite in raising their list prices every year, the pressure to provide larger and larger rebates. This rule provides a clear pathway for drug companies instead to compete to have the lower price and out-of-pocket cost to the patient.
This proposal complements efforts in progress laid out in the President’s “American Patients First” blueprint, including requiring the disclosure of list prices in television ads, increasing negotiated discounts in Medicare, banning pharmacy gag clauses, adopting real-time prescription benefit tools, and boosting low-cost generic and biosimilar competition.
Read a fact sheet on the proposed rule.
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