WASHINGTON — Secretary of Health and Human Services (HHS) Alex Azar announced radical changes to the way drugs are paid for in a new proposed rule aimed at lowering out-of-pocket costs for patients, especially seniors.
Speaking Friday at the Bipartisan Policy Center here, Azar called the new rule the “single biggest change to the way American drugs are priced at the pharmacy counter ever.”
It would end drug manufacturers’ practice of paying rebates to pharmacy benefit managers (PBMs), which the administration and others have criticized as one of the more important ways that keep drug prices high for patients.
Rebates are a set percentage of the drugmaker’s list price, which creates an incentive for both the manufacturer and the PBM to keep that list price high. Moreover, the rebates often are not passed along to patients, but instead are kept by the PBMs and the insurers for whom they work.
If HHS’s proposal is implemented, the draft rule would put an end to the safe harbor protections of the Anti-Kickback Statute for PBMs, Medicare Part D plans and Medicaid managed care organizations, without which the rebates would be illegal.
“President Trump is proposing to strip away these special interest protections,” Azar said. Instead, the rule would replace them with “transparent up-front discounts” which will go directly to patients.
Nuts and Bolts
The rule would also extend to “fixed fee service arrangements” between drugmakers and PBMs, an HHS fact sheet noted.
Rebates for prescription drugs currently account for 26%-30% of a drug’s list price, on average, according to the fact sheet.
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. That will benefit patients: those who have not met their deductible and who therefore can end up paying the full list price, as well as others who are subject to coinsurance that is also tied to list prices.
In a meeting with reporters after the briefing, Azar argued that, in drug classes subject to “ever-increasing rebates,” pharmaceutical companies will no longer have excuses for not setting the list price to what patients actually pay at the counter.
“There is no reason why those rebates should not convert equally from rebates to discounts for the patients,” Azar added.
Asked whether the new rule could potentially raise premiums, Azar said projections indicate an increase of $3-$5 per month for a Medicare beneficiary.
Any savings at the counter would exceed these losses, the senior HHS official said on the Thursday phone call.
The new rule includes a 60-day period for public comment. The current safe harbors would be eliminated as of Jan. 1, 2020, but the new protections would be available “as soon as legally possible” or 60 days after the final rule is published.
While the rule only impacts the agencies own programs and not commercial insurers, changes could be made for commercial plans through legislation.
“We welcome Congress to join us,” Azar said.
Stakeholders, Experts Respond
Two senior Democratic congressmen attacked the proposal. “The Trump Administration’s rebate proposal will increase government spending by nearly $200 billion and the majority of Medicare beneficiaries will see their premiums and total out-of-pocket costs increase if this proposal is finalized,” said House Ways & Means Committee chairman Richard Neal (D-Mass.) and Energy & Commerce Committee chairman Frank Pallone Jr. (D-N.J.) in a statement.
“While we agree that the cost of prescription drugs must be addressed, we are concerned that this is not the right approach.”
The Bipartisan Policy Center’s chief medical officer was also skeptical.
“From a physician perspective, access to affordable medicine and medication adherence are the two critical pieces … and I think right now there are too many unknown variables,” said Anand Parekh, MD. “Too many entities have to voluntarily do the right things for this to result in the intended impact that the administration would like to see.”
Others, however, were more sanguine about the proposal.
“I think there is potential promise in a revamped system where pricing is more transparent. Consumers, especially those who take expensive drugs and those who pay full price with high deductibles, are hurt by high list prices — especially when they are not the true net price. And … removing some of the current gaming where plans/PBMs have an incentive to favor heavily rebated drugs over drugs with lower overall prices would be positive for consumers and for the system as a whole,” said Jack Hoadley, PhD, of the Georgetown University Health Policy Institute, in an email to MedPage Today.
Asked whether the proposed rule would succeed in lowering list prices, “the short answer is that we really don’t know,” Hoadley said.
“Whether list prices go down (or rise less rapidly) and by how much depends on how the various stakeholders respond to very different rules of the road,” Hoadley said.
He noted a couple of ways in which the new policy could end up costing consumers more. List prices might not rise as much as they would have without the rule, but rebates could shrink so that net prices are higher. “That would mean that manufacturers get more money than today and so spending is higher,” he wrote.
Or list prices could be tempered for existing drugs but launch prices for new drugs might be “considerably higher” and it could be harder to negotiate discounts, he suggested.
“Nothing in this proposal addresses high launch prices for new drugs, especially those with minimal or no competition. Nor does this proposal address the gaming that effectively extends patent protection, such as pay for delay or the court settlements that are blocking new biosimilars from entering the market in the U.S. We should have a healthy discussion around this new proposal, but we also need to talk about some of these other measures,” Hoadley added.
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. “I don’t think the notion of list prices as we now think of them will exist anymore,” he said.
But “it’s not an earthquake to the overall cost of drugs in the United States,” Holtz-Eakin said.
He said he’d like to see more studies regarding how players could respond in the supply chain. Still, he characterized the rule as a “solid” idea.
“Something has to change and to go back to a plain reading of the statue is not a crazy idea in my view,” he said in a phone call.
One cancer-focused group, the Community Oncology Alliance (COA), welcomed the rule.
“Over the last three years, COA has documented real-life horror stories from practices and physicians about patients battling cancer who have suffered at the hands of PBMs due to delayed coverage decisions, denial of needed treatments, impenetrable bureaucracies, and failure to receive medications in a timely manner,” the group said in a press statement. “This move will lower drug prices for all Americans by finally ensuring that patients receive the benefit of negotiated drug discounts, not plan sponsors and pharmacy benefit managers.”
The COA urged the Trump administration to focus next on fixing “murky direct and indirect remuneration fees … that PBMs extort from pharmacy providers and that further drive up list prices of drugs.”