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Trump administration withdraws drug rebate rule

Moody's credit analysts called the move positive for health insurers that own large PBMs.

Susan Morse, Managing Editor

President Trump stands with HHS Secretary Alex Azar. Today the administration announced it would not implement a drug rebate rule.President Trump stands with HHS Secretary Alex Azar. Today the administration announced it would not implement a drug rebate rule.

The Trump Administration has pulled back on its proposal to eliminate safe harbor protections for rebates paid by pharmaceutical manufacturers to pharmacy benefit managers and health plans participating in Medicare and Medicaid.

"Based on careful analysis and thorough consideration, the President has decided to withdraw the rebate rule," said Judd Deere, special assistant to the president and deputy press secretary. "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."

While no direct reason was given for the change, a Reuters source speculated that President Trump is instead focusing efforts on the drug-makers themselves.

The rule targeted pharmacy benefit managers by proposing to remove anti-kickback protections called safe harbor from rebates paid to PBMs, and instead create a new safe harbor for discounts offered to consumers at the  pharmacy counter.

But insurers and other organizations said the rule could raise prices for consumers. Manufacturers offer rebates to pharmacy benefit managers which are then passed on to health plans, which use the rebates to lower premiums for all beneficiaries.

Current safe harbor protections protect these rebates from anti-kickback restrictions. If the rule had been finalized, PBMs could have faced kickback fraud for their current practices.


Moody's credit analysts called the move positive for health insurers that own large PBMs.

This includes the major players: Cigna owns Express Scripts; CVS merged with Aetna; UnitedHealth has OptumRx and Anthem has its own PBM in IngenioRx.

Moody's Vice President Senior Analyst Dean Ungar said, "The withdrawal is positive for health insurers that own large PBMs, as the proposal would have disrupted the economics of the PBM business model. While insurers could have adjusted to the impact of the elimination of rebates on their government business, if a similar policy on rebates migrated to the commercial space it could have had a larger impact."

On the announcement, Shares of Cigna rose 12%, CVS gained 6% and UnitedHealth Group was up 4%, while pharmaceutical company shares fell, according to the Reuters report. Merck & Co, Bristol-Myers Squibb Co and Pfizer were all off more than 2%.


Matt Eyles, president and CEO of America's Health Insurance Plans said, "As we all know, drug prices and price increases are set and controlled solely by drug makers. They alone could decide to reduce prices – and can do so today.

In April, the Academy of Managed Care Pharmacy had warned the proposal could have the unintended consequence of increasing costs for some patients instead of reducing them.

AMCP CEO Susan A. Cantrell said today, "… changing the model currently in place for negotiating drug costs to shift from rebates to chargebacks is not the solution and could increase Medicare Part D premiums without lowering out-of-pocket drug costs. The proposed rule would have eliminated one of the few levers available to lower prescription drug costs."

The Campaign for Sustainable Rx Pricing Executive Director Lauren Aronson said, "This decision is a huge win for America's seniors and a huge loss for Big Pharma. We applaud the administration for seeing through Big Pharma's blame game and making the right call to withdraw this controversial rule.
The withdrawal of the Rebate Rule will allow both the administration and Congress to put greater focus on solutions that will hold Big Pharma accountable and lower prescription drug prices."


The rebate rule was part of President Trump's blueprint, released last year, to lower drug costs. Under the president's leadership, prescription drug costs have declined for the first time in 46 years, according to Deere.

Senate and House committees have proposed bills to lower drug costs and the Senate Finance Committee this year grilled pharmaceutical CEOs and pharmacy benefit managers to find out how to make prescription drugs more affordable.


Caitlin B. Oakley, a spokesperson for the Department of Health and Human Services said, "Secretary Azar is fighting alongside President Trump to lower prescription drug costs and protect America's seniors. President Trump and Secretary Azar are taking bold action to end foreign free riding, examine how to safely import lower-cost prescription drugs, empower patients with meaningful transparency, and the list goes on."

Twitter: @SusanJMorse
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