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U.S. government proposes rule overhauling drug industry rebate system

NEW YORK/WASHINGTON (Reuters) – The U.S. government on Thursday proposed a rule to end the industry-wide system of after-market discounts called rebates that pharmacy benefit managers (PBMs) receive from drugmakers, a practice that has been under increased scrutiny.

FILE PHOTO: Pharmaceutical tablets and capsules are arranged on a table in this picture illustration taken in Ljubljana August 20, 2014. REUTERS/Srdjan Zivulovic

If finalized, the rule would change a system that has been in place for decades and that has been criticized for obfuscating the real price of prescription medicines.

The administration of U.S. President Donald Trump has been promising to lower the cost of prescription drugs for consumers, who have seen their out-of-pocket expenses rise each year with higher list prices of pharmaceuticals.

The proposed rule from the U.S. Department of Health and Human Services (HHS) would apply to companies like Cigna Corp’s Express Scripts and CVS Health Corp, as well as companies like Humana Inc that manage Medicare prescription drug benefits, and Medicaid managed care organizations.

“This proposal has the potential to be the most significant change in how Americans’ drugs are priced at the pharmacy counter,” HHS Secretary Alex Azar said in a statement.

Eliminating rebates on prescription drug purchases is a key element of the Trump administration’s plan to lower prescription medicine costs. Trump made lowering drug prices a major priority during his 2016 presidential campaign.

PBMs administer drug benefits for employers and health plans and also run large mail-order pharmacies. Drugmakers say they are under pressure to provide rebates to the few PBMs that dominate the market in order to gain patient access to their products by having them included on preferred coverage lists.

Drugmakers say that PBMs do not pass on enough of those savings to patients – a contention the PBMs dispute – and that the rebates force them to raise the list price of medicines over time to preserve their profits. They argue that the net revenue they actually see has little relation to list prices.

Democratic Senator Ron Wyden, ranking member of the Senate Finance Committee, said in a statement that industry middlemen, such as PBMs, “have no accountability and consumers don’t see any savings at the pharmacy counter,” adding that he also wants drugmakers to lower their list prices.

The Pharmaceutical Care Management Association, the main PBM trade group, said eliminating rebates would drive up drug costs and out-of-pocket expenses for consumers. The group said drugmakers alone set prices.

Express Scripts said it was evaluating the proposed rule, but said rebates help keep premiums low for Medicare beneficiaries.

But the Pharmaceutical Research and Manufacturers of America (PhRMA), the main U.S. lobbying group for drugmakers, said the proposal, if enacted, would “fix the misaligned incentives in the system.”

The HHS proposal would allow rebates on prescription drugs to be offered directly to patients, and allow PBMs to establish fixed fee service arrangements with drugmakers that could replace lost revenue from rebates.

An anti-kickback law makes it illegal to pay an incentive for drugs or services that Medicare, Medicaid or other federal healthcare programs cover. The government has been considering removing the safe harbor protection for rebates from the anti-kickback law since last year.

Reporting by Caroline Humer in New York and Yasmeen Abutaleb in Washingtong, additional reporting by Deena Beasley in Los Angeles; editing by Bill Berkrot

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