Proposed Drug-Rebate Rule May Contain Side Effects for Employers

Last week, Health and Human Services Secretary Alex Azar and Inspector General Daniel Levinson proposed a rule to lower prescription drug prices and out-of-pocket costs by encouraging manufacturers to pass discounts directly on to patients and bringing new transparency to prescription drug markets.

“This proposal has the potential to be the most significant change in how Americans’ drugs are priced at the pharmacy counter, ever, and finally ease the burden of the sticker shock that millions of Americans experience every month for the drugs they need.”

The HHS proposal would expressly exclude from safe harbor protection under the Anti-Kickback Statute rebates on prescription drugs paid by manufacturers to pharmacy benefit managers, Part D plans and Medicaid managed care organizations.

It would create a new safe harbor for prescription drug discounts offered directly to patients, as well as fixed fee service arrangements between drug manufacturers and PBMs. The proposal would also provide a historic new level of transparency to a system that has been shrouded in secrecy for decades.

The proposal would address the most significant incentive drug manufacturers cite in raising their list prices every year: the pressure to provide larger and larger rebates. This rule provides a clear pathway for drug companies instead to compete to have the lower price and out-of-pocket cost to the patient.

Brian Marcotte, CEO of Washington-based National Business Group on Health, says his organization applauds the administration’s effort to make changes in Medicare policy, “with an aim at reducing prescription drug prices, lowering out-of-pocket spending for patients, and increasing transparency within the pharmaceutical supply chain. The push for more straightforward, simple and streamlined supply-chain pricing and contracting models is reaching a tipping point. ”

As noted in the Administration’s proposal, Marcotte says, the National Business Group on Health’s Large Employer 2019 Health Care Strategy and Plan Design Survey found three quarters of large employers do not believe drug manufacturer rebates are an effective tool to drive down pharmaceutical costs and, over 90 percent of employers would welcome an alternative to the rebate-driven approach to managing drug costs.

“Large employers have been acutely focused on drug-pricing issues, as related to deficiencies within the supply chain,” Marcotte says. “In fact, according to the NBGH survey, most employers (84 percent) believe the pharmaceutical supply chain needs to change.  Thirty-five percent believe it needs to be more transparent and drug manufacturers rebates should be reduced.” And overall, he adds, half of employers stated the pharmaceutical supply chain is inefficient, too complex and needs to be overhauled and simplified.

While the NBGH is still analyzing the proposal and its potential impact on the commercial market, Marcotte says, “we are encouraged by the administration’s continued focus on a holistic understanding of the driving forces behind high prescription drug prices.”

Meanwhile, Bloomberg reports that “the proposal would rein in ten of billions of dollars in rebates that drugmakers pay to PBMs who manage Medicare and Medicaid prescription-drug plans. The move stands to upend how a large part of the prescription-drug market functions.”

These proposed changes are “potentially devastating to the current pharma ecosystem,” said Eric Coldwell, an analyst with Baird Equity Research. “The U.S. healthcare system is a sandcastle and the tide is coming in.”

The proposed rule must undergo a public comment period before it can be finalized, with a projected effective date of Jan. 1, 2020.

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