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HHS issues final rule ending pharmacy benefit manager drug rebates to insurers

Opponents say the rule will not lower drug prices, and some question whether it is legal, having bypassed the public comment process.

Susan Morse, Managing Editor

The Department of Health and Human Services on Friday finalized a rule ending protections that allow pharmacy benefit managers to pass along Medicare Part D prescription rebates to insurers.

The final rule exclues safe harbor protections under the Anti-Kickback Statute for rebates paid by drug manufacturers to PBMs, and creates new safe harbor protections for these rebates to be passed directly to consumers at the pharmacy counter.


HHS Secretary Alex Azar said the move that will create incentives to lower list prices and reduce out-of-pocket spending on prescription drugs. Savings to patients may be nearly 30%, the average difference between the list price of a drug and the net price after a rebate, HHS said. 

Patient out-of-pocket spending is usually based on the drug's list price and does not take into account rebates to plans, HHS said. Rebates typically do not affect the price which means, in some cases, a patient's cost sharing can be higher than the net price paid by the health plan after rebates.

However, opponents say the move will not lower drug prices and will increase costs for all beneficiaries as insurers use the rebates to lower premiums.

"Drug prices are out of control because Big Pharma alone sets and controls drug prices, not because health insurance providers and our PBM partners negotiate discounts and rebates to reduce drug prices," said Matt Eyles, president and CEO of America's Health Insurance Plans. "While pharma manufacturers would have you believe rebates are a problem and have pushed the Administration's 'rebate rule,' time and time again, economists and analysts have found that the rule takes us in the wrong direction by increasing costs and premiums."
In February 2019, HHS actuaries said the rule would increase Medicare premiums for all seniors by 25%, said Eyles adding that the rule would give drug makers another $100 billion bailout and have taxpayers footing the bill for higher costs. 

The Campaign for Sustainable Rx Pricing said, "The Big Pharma-backed Rebate Rule is a misguided proposal that the administration's own actuaries found would do nothing to lower drug prices while increasing premiums on Medicare Part D beneficiaries, costing taxpayers more than $200 billion and handing drug companies a more than $100 billion bailout," said CSRxP executive director Lauren Aronson. 

There is also the question of whether the rule is legal, having been issued without the required process for public input through first issuing a proposed rule, or at least having a 19-month span since the original proposed rule was released. 

In February 2019, HHS released the proposed rule targeting PBM rebates, but in July 2019, the Trump Administration withdrew the rebate rule. A year later this July, President Trump issued an executive order "Lowering Prices for Patients by Eliminating Kickbacks to Middlemen," effectively reviving the proposed rule. 

On November 13, the Office of Management and Budget reviewed the new final rule prior to HHS releasing it on Friday.


HHS released this, an interim rule on the favored nation model for drugs and final changes to the Stark Law on physician self-referrals on Friday, in the waning days of the Trump Administration.


"Every year, Americans have suffered from drug prices driven constantly upward by a shadowy system of kickbacks, and the President is putting an end to that," said HHS Secretary Alex Azar. "With the final rebate rule, we are taking on a broken system and delivering big discounts directly to American patients. Our action on rebates has the potential to be the most sweeping change to how Americans' drugs are priced at the pharmacy counter, ever, by delivering discounts directly to patients and bringing much-needed transparency."

Twitter: @SusanJMorse
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