Trump Officials Move to Lower Drug Prices by Passing On Rebates to Patients

https://www.nytimes.com/2019/01/31/us/politics/trump-drug-prices.html

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WASHINGTON — The Trump administration proposed on Thursday to require health insurance companies and middlemen to give consumers the benefit of discounts they get on prescription drugs, a huge change that could substantially lower some patients’ costs but could also have unintended consequences.

Drug makers now pay billions of dollars in rebates to such middlemen to increase the use and sales of their products. Under the proposal, these rebate payments would be viewed as illegal kickbacks, disrupting longstanding arrangements in the pharmaceutical industry.

“This is an incredibly important proposal that could fundamentally change how drugs are priced and paid for at pharmacies,” Alex M. Azar II, the secretary of health and human services, said in an interview. “The current rebate-based system rewards higher list prices, enriches middlemen and drives up patients’ costs.”

“We are taking action to encourage the industry to shift away from the opaque rebate system and provide true discounts to patients at the point of sale,” Mr. Azar added.

The Trump administration said the proposal would eliminate the legal protection for rebates paid by drug manufacturers to insurers that care for people in Medicare and Medicaid, and to the middlemen that manage drug benefits for those patients.

Rebates are typically a percentage of the list price set by drug makers. The Trump administration says the current arrangements encourage drug makers to set high list prices so they can pay larger rebates to insurers and the middlemen, known as pharmacy benefit managers.

Administration officials and some economists say everyone in the drug “supply chain” — except the patient — benefits when the list price of a drug goes up.

Drug rebates today average 26 to 30 percent of a drug’s list price, Mr. Azar said. Under the proposed rule, he said, these rebates may be passed on directly to patients and reflected in what they pay at the pharmacy counter.

Patients could see reductions of 30 percent or more in their out-of-pocket costs for insulin and for drugs to treat high cholesterol, rheumatoid arthritis and many other conditions, Mr. Azar said.

Savings for consumers will vary, Mr. Azar said, but “sicker beneficiaries and those with higher drug costs are likely to save the most.”

But critics said Thursday that the proposal could lead to higher premiums, as health insurance plans would increase prices to help offset the loss of revenue from drug rebate payments. The Trump administration acknowledged this possibility in late 2017, when it floated the idea of requiring insurers to share some rebates with Medicare beneficiaries.

President Trump’s latest proposal is similar to policies advocated by drug companies, and they welcomed it.

“We applaud the administration for taking steps to reform the rebate system to lower patients’ out-of-pocket costs,” said Stephen J. Ubl, the president and chief executive of the Pharmaceutical Research and Manufacturers of America. He said the proposal could curtail incentives for insurers and benefit managers to favor medicines with high list prices.

The Community Oncology Alliance, representing cancer specialists, also praised the proposal, saying it increases the likelihood that “patients, not pharmacy benefit middlemen, will receive the benefit of the discounts from manufacturers.”

But insurers panned the proposal and warned that it could lead to higher premiums for consumers.

Matt Eyles, the president and chief executive of America’s Health Insurance Plans, called the proposal “well intentioned but misguided.”

“The focus on rebates has been a distraction from the real issue,” Mr. Eyles said. “The problem is the price. Manufacturers have complete control over how drug prices are set.”

Under pressure from the White House, Pfizer and other major drug companies delayed or rolled back price increases last year. But several dozen drug manufacturers have raised prices on hundreds of medicines this year.

Congressional Democrats were skeptical of the proposed rule. Senator Ron Wyden of Oregon, the senior Democrat on the Finance Committee, said that nothing in the proposal required drug companies to reduce prices.

Mr. Wyden said he wanted to go further and “force drug companies to lower their list prices to fully account for the removal of rebates, rather than pocket the difference as a windfall.”

In a joint statement, two powerful House committee chairmen also criticized the proposal. A “majority of Medicare beneficiaries will see their premiums and total out-of-pocket costs increase if this proposal is finalized,” said the statement, by Representatives Frank Pallone Jr. of New Jersey and Richard E. Neal of Massachusetts, both Democrats.

The public will have 60 days to comment on the proposal. The administration will consider the comments and can then issue a final rule with the force of law.

Federal law generally prohibits the payment of “remuneration” to induce or reward the generation of business involving goods or services reimbursed by Medicare or Medicaid. The inspector general of the Health and Human Services Department, Daniel R. Levinson, proposed a new interpretation of the law on Thursday.

The inspector general is independent, but his proposal is the vehicle for the Trump administration to eliminate what it sees as perverse incentives in the current system of drug rebate payments.

Under the proposal, the government would still offer legal protection for price concessions on prescription drugs, but only if those discounts were reflected in the retail prices charged to patients at pharmacies.

The proposal would carry out a commitment by Mr. Trump, who promised in May to “bring soaring drug prices back down to earth.”

“Under the proposal,” said a senior official at the Department of Health and Human Services, “the price of drugs will be negotiated like every either good or service in America, on the sticker price of the product. We are ensuring that if anybody is getting a discount off that price, it’s the patient at the pharmacy counter.”