Published: Sun, February 03, 2019
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HHS seeks to end 'backdoor deals' to lower drug prices

HHS seeks to end 'backdoor deals' to lower drug prices

Romney is a member of the Senate Health, Education, Labor and Pensions Committee, which has oversight on healthcare issues, including drug pricing.

"A shadowy system of kickbacks", was how Health and Human Services Secretary Alex Azar described the current system in a Friday speech.

The Trump administration plans to ban rebates paid by pharma to insurance middlemen, and instead wants to see them passed directly to patients. "Big Pharma has been working nonstop to deflect attention from outrageously high prices by convincing Americans that health insurance providers and their PBM partners are the problem, acting as so-called 'middlemen, '" Matt Eyles, the CEO of America's Health Insurance Plans, the industry's main lobbying group, said in a statement. Consumers are unlikely to collect the full benefit of eliminated rebates.

At the same time, the change would produce uncertain ricochets, including higher drug-plan premiums for consumers, that would produce new winners and losers across the economy. "But I'm struck by the uncertainty that the administration has in what the effects would be". Data show that prices for brand-name drugs have continued to rise, though at a somewhat slower pace.

Under a proposed rule HHS released January 31, drug manufacturers would no longer be able to give rebates to pharmacy benefit managers, but they would be allowed to offer discounted prices directly to consumers. But consumers' savings from total cost-sharing will exceed the additional costs.

In theory, by scrapping the back-end rebate, drug companies will be incentivized to lower their list prices on the front end, a senior HHS official told reporters on a Thursday press call.

For PBMs and drug companies, the new rule is "a very big deal", said Douglas Holtz-Eakin, PhD, of the American Action Forum, in a phone call. Drugmakers offer those rebates to PBMs to get them to include a particular drug on their lists of which prescriptions a patient can take.

The change might also slow the soaring list-price increases that have become a publicity nightmare for the industry.


This latest proposal will eliminate the PBM's rebate, which disincentivizes any list price hikes. But some believe it would remove an important factor. The rebates, which add up to tens of billions every year, are widely seen as improving the chance that a drug will be used and covered.

Fixed fee payments from manufacturers to PBMs for the services that PBMs provide those manufacturers. Because of the complicated way that the U.S. healthcare system works, drug companies say they're only taking home a small fraction of those increases. Premiums for Medicare drug plans under the proposal could increase anywhere from 8 percent to 22 percent while average costs patients pay out of pocket would fall 9 percent to 14 percent, according to the Department of Health and Human Services.

Insurers, who often receive rebates directly, could also be hurt financially. "Manufacturers have complete control over how drug prices are set".

While the out-of-pocket cost for many people picking up drugs at the pharmacy would decline, the premiums they pay for coverage would rise. HHS acknowledges Medicare prescription premiums would go up $3 to $5 a month.

"There is likely to be a wide variation in how much savings people see based on the drugs they take and the point-of-sale discounts that are negotiated", said Elizabeth Carpenter, policy practice director at Avalere, a consultancy.

"We applaud the Administration for taking steps to reform the rebate system to lower patients' out-of-pocket costs", Stephen Ubl, president and CEO of PhRMA, said in a statement.

Tricia Neuman, senior vice president of the Kaiser Family Foundation, noted on Twitter the HHS analysis has 10-year budget impact estimates that range from $99.6 billion to $196.1 billion.

HHS notes that it intends for the discount safe harbor to continue to protect discounts on prescription pharmaceutical products offered to other entities, including, but not limited to, wholesalers, hospitals, physicians, pharmacies, and third party payors in other Federal health care programs.

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