drugprices_071119istock
THS analysis: Trump administration nixes drug rebate proposal

On Thursday, the Trump administration withdrew a drug rebate proposal that would have required pharmacy benefit managers (PBMs) to pass along rebate savings to consumers rather than keeping them as a profit for themselves. The plan, announced on January 31, 2019, had three main goals:

  1. Address rebates on prescription drugs paid by manufacturers to PBMs;
  2. Create a new safe harbor protecting discounts offered to patients at the pharmacy counter; and
  3. Create new safe harbor protection for fixed fee services arrangements between manufacturers and PBMs.

While drug manufacturers were largely supportive, PBMs, insurers, the AARP, and some Democrats – including Speaker Nancy Pelosi – vocally opposed the plan. Even some White House budget officials were skeptical that eliminating the rebates would result in drug manufacturers charging lower list prices – a position that was supported by the Congressional Budget Office’s analysis estimating that the plan would cost Medicare $177 billion over 10 years and would have little effect on manufacturer prices.

The rebate reversal came just days after a federal judge ruled that the administration could not require drug companies to disclose their prices in television ads, leaving only a few main pillars of the president’s agenda for lowering drug prices  – such as tying some Medicare drug prices to lower prices in other countries –  in place.

HHS Secretary Azar told reporters Thursday the proposal was withdrawn because President Trump is “is deeply committed to protecting America's seniors” and “does not want any risk that our actions could cause seniors' premiums to increase." Secretary Azar and White House spokesman Judd Deere reaffirmed the administration’s commitment to lowering drug prices, but acknowledged that Congress will need to play a larger role. “The Trump administration is encouraged by continuing bipartisan conversations about legislation to reduce outrageous drug costs imposed on the American people, and President Trump will consider using any and all tools to ensure that prescription drug costs will continue to decline,” Deere said in a statement.

 

Our Take

The recent setbacks to any substantive action on drug pricing will continue a narrative that the Trump Administration and this Congress are unable to materially influence the cost of drugs. Time is running short for some type of legislative solution and the dissonance between HHS and White House leadership is perpetuating ongoing stasis. Absent a clear bipartisan strategy, drug manufacturers continue to operate under the pretense that they have staved off significant disruption for the remainder of this congressional session.

However, the underlying populist sentiments regarding drug pricing and accessibility will continue to have important political implications. Most notably, the continued price increase of insulin is becoming a flash-point for presidential candidates. Further, we are on the front-end of seeing an increasing number of genetically-oriented therapies enter the market, promising personalized solutions for rare and complex diseases and a decidedly more complicated economic calculus.