DHHS Proposes Way to Curtail PBM Drug Rebate Programs

-Mie Hashimoto

A new government proposal is trying to change the rules of who benefits from drug discounts offered by pharmacy benefit managers.

On January 31, 2019, the U.S. Department of Health and Human Services (HHS) proposed a rule to encourage drug makers to pass drug price discounts directly to consumers, rather than have the bulk of those discounts be taken up by pharmacy benefit managers (PBMs).

The proposed rule change would amend anti-kickback rules designed to prevent bribery schemes that might influence what’s offered under the Medicare and Medicaid programs. Currently, the anti-kickback rules include exceptions for drug discounts, and offer significant latitude for how PBMs might receive those discounts.  

In recent years, prescription drug prices have been rising at an alarming rate, and federal regulators are examining whether these discounts could be part of the problem. The proposed rule aims to lower out-of-pocket costs for consumers and decrease government drug spending by eliminating some rebates and replacing them with discounts provided to beneficiaries at the point of sale.

Changing systemic incentives and rewards

Currently, prescription drug manufacturers set the list price of drugs that they sell to wholesalers and also offer discounts and rebates to PBMs. A portion of the PBM’s compensation comes from the gap between the list price and the net price, so the higher the list price, the higher the rebate.

Under the current system, however, the rebate too often does not reach the consumer as a reduction in drug prices, and many consumers who are uninsured or underinsured must pay high list prices. Since PBMs are compensated based on the savings they create, they may also be tempted to recommend higher priced drugs.

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Under the proposed rule, the Department of Health and Human Services says it would no longer protect price reductions from manufacturers to plan sponsors under Medicare Part D or Medicaid managed care organizations (MCOs), essentially eliminating the current rebate system. The rule alters the exceptions to the anti-kickback rules. These new proposed exceptions would:

  • Protect point-of-sale price reduction incentive programs if certain conditions are met, including that the price reduction is reflected in charges to the customer.
  • Allow for fixed fees that drug makers pay to PBMs as long as those fees are part of a written agreement and reflect fair market value.

Differing reactions across the sector

As might be expected, drug makers reacted more positively to the move than PBMs. The Pharmaceutical Research and Manufacturers of America (PhRMA), which represents the country’s leading innovative biopharmaceutical research companies, “applaud the Administration for taking steps…to lower patients’ out-of-pocket costs.” However, The Pharmaceutical Care Management Association (PCMA), the national association representing American PBMs, is concerned that “eliminating the long-standing safe harbor protection for drug manufacturer rebates to PBMs would increase drug costs and force Medicare beneficiaries to pay higher premiums and out-of-pocket expenses.”

Patient advocates offered cautious support for the proposal, as long as it isn’t the final step in addressing escalating drug prices. For example, in an AARP interview, David Mitchell, president of Patients for Affordable Drugs, said the proposal offered more transparency for consumers of the deals struck between drug makers and PBMs, but he still believes that federal regulators should be allowed to directly negotiate drug prices for Medicare Part D prescriptions.   

If passed, the rule would go into effect on January 1, 2020. HHS is requesting comments about the rule until April 8, 2019. To read the full rule and instructions on how to comment, click here.


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