Medicare/Medicaid Drug Rebates Would be Banned Under Trump Administration Proposal

A proposal to ban drug companies from giving rebates to pharmacy benefit managers and insurers in Medicare Part D- and Medicaid-managed care plans was announced Thursday by the Trump administration.

Instead of those rebates, drug makers would be urged to provide discounts directly to pharmacy customers, and pharmacy benefit managers would receive a set fee, CNN reported.

The proposal would be a major change and was welcomed by the drug industry, but criticized by insurers and pharmacy benefit managers.

"If this rule goes into effect in its current form, it would be the largest change the administration has yet announced on drug pricing," Rachel Sachs, an associate law professor at Washington University, told CNN.

Currently, pharmacy benefit managers negotiate rebates from drug makers to insurers in exchange for better coverage terms -- typically lower copays for brand-name drugs.

The goal is to get insurers' enrollees to choose that cheaper brand-name medication over a competitor's version. Pharmacy benefit managers keep a part of the rebate, CNN reported.

In 2016, insurers received $89 billion in rebates, lowering their spending on prescription drugs to $279 billion in 2016, according to estimates from the research and consulting firm Altarum.

That doesn't include the portion of the rebate kept by pharmacy benefit managers, which is not made public, CNN reported.

The proposal's impacts are uncertain. While Medicare and Medicaid patients with high drug costs would save money, there could be higher premiums for all beneficiaries.

About 30 percent of Medicare Part D enrollees spend enough that their savings under the proposal would likely exceed any premium hikes, according to the Trump administration, CNN reported.

And because the government provides various subsidies in the Part D program, federal spending could rise between $35 billion and $196 billion over 10 years, projections suggest.

Another unknown is how the proposal will affect drug costs for the more than 150 million Americans who get their insurance through work, CNN reported.

Drug makers are responsible for high drug costs and this proposal could boost patients' drug costs, according to the Pharmaceutical Care Management Association, which represents pharmacy benefit managers, and America's Health Insurance Plans, an industry group for insurers.

"PBMs keep coverage affordable by negotiating rebates with drug-makers, which are used to enhance benefits and reduce beneficiary cost sharing and premiums," JC Scott, the association's president, told CNN.

Drug makers say high drug prices are the fault of others.

"This proposal would also fix the misaligned incentives in the system that currently result in insurers and pharmacy benefit managers favoring medicines with high list prices," Stephen Ubl, chief executive of PhRMA, a trade group for drug makers, told CNN.

The proposal was panned by some Democrats.

"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," Reps. Richard Neal of Massachusetts and Frank Pallone of New Jersey said in a statement, CNN reported.

"While we agree that the cost of prescription drugs must be addressed, we are concerned that this is not the right approach," they said.

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