Azar challenges Congress to expand drug rebate reform to commercial market 

Alex Azar
HHS Secretary Alex Azar

Alex Azar is challenging Congress to extend the administration’s plan to end safe harbor protections for drug rebates to the commercial insurance market. 

In a speech Friday morning at the Bipartisan Policy Center, the head of the Department of Health and Human Services said that the agency’s proposal released a day earlier regarding Medicare Part D sets the stage for legislators to act on their calls for significant reform of the “black box” that is the pharmacy supply chain.  

“Congress has an opportunity to follow through on their calls for transparency, too, by passing our proposal into law immediately and extending it into the commercial drug market,” Azar said.

In a briefing with reporters following the speech, Azar said that he is in contact with legislators from both chambers and from both sides of the aisle on this issue but did not elaborate on any rebate-specific legislative efforts that may be in negotiations.

The Trump administration unveiled its long-awaited proposal last night that would eliminate anti-kickback safe harbors for drug rebates negotiated by pharmacy benefit managers and instead offer protections to discounts on drugs that are passed directly on to consumers.

RELATED: Cigna shrugs off potential impact of drug rebate rule proposal 

Azar said that the rule would have ripple effects in the private sector and that it could lead commercial plans to also abandon the current rebating system. And opponents of the plan, he said, had better offer their own alternatives to shake up the system. 

“If you want to oppose these changes, you must have an alternative to the status quo,” Azar said at the briefing. “You cannot defend what’s happening in the current status quo. You can’t defend system built to have higher and higher list prices.” 

Though HHS can’t enforce the changes in the commercial sector without an act of Congress, private insurance plans typically follow Medicare’s lead, he said. Meena Datta, global co-leader of law firm Sidley Austin LLP’s healthcare practice, told FierceHealthcare that while this is true, there are avenues that PBMs negotiating in the commercial space can take to continue business as usual. 

Though the HHS Office of Inspector General clearly wants to see its policy proposal have a “chilling effect” in the private sector—and it may do just that—rebate negotiations and contracts operate on different timelines in Part D than in the commercial space, which could offer legal cover to prove PBMs are conducting these discussions separately. 

“Those are very common practices in the industry to avoid the negative implication that there’s swapping going on,” Datta said. 

RELATED: N.Y. pharmacists—PBMs marking up generic drugs in state's Medicaid managed care program

Other experts say that it's likely pharmaceutical companies and PBMs fall in line. OIG also made it clear it would be watching in a fact sheet (PDF) accompanying the rule, said Ian Spatz, senior adviser with Manatt Health and former vice president for global health policy at Merck.

In addition to the fact the commercial market's tendency to follow Medicare policy, Spatz said that operating two approaches to negotiating price may be a hard sell to insurers and drug companies.

"It's hard to understand how health plan insurers and manufacturers would want to operate two different systems," Spatz said.

Some PBMs have said that doing away with the current rebate structure wouldn’t hurt them anyway. Express Scripts, the country’s largest, said that it would “do just fine” without rebates, and in its fourth-quarter earnings call on Friday morning, Cigna—now the parent company of that PBM—downplayed the rule’s impact, saying it would “not have a meaningful impact” on its growth projections

Congress is also clearly listening, too. Sen. Chuck Grassley, R-Iowa, posted a statement on Twitter Thursday evening commending HHS for the proposed rule, as it shows the administration is willing to take “tough steps” to address the rising cost of drugs. Grassley is one of the legislators leading the charge on drug pricing in Congress.

Payers jeer, drug companies cheer proposed rule 

Not surprisingly, insurers are giving HHS’ proposal a thumbs down, while pharmaceutical companies say it would address adverse incentives in the current supply chain. 

America’s Health Insurance Plans (AHIP) said that the plan would severely weaken insurers’ and PBMs’ abilities to negotiate lower prices for Part D beneficiaries. AHIP CEO Matt Eyles commended the administration for its focus on drug prices but said greater attention needs to be paid to the real culprit in the issue: drugmakers. 

“Big Pharma has been working nonstop to deflect attention from outrageously high prices by convincing Americans that health insurance providers and their PBM partners are the problem, acting as so-called ‘middlemen,’” Eyles said. “We are not middlemen—we are your bargaining power, working hard to negotiate lower prices with drugmakers to save seniors and other patients about 50% a year on their prescription drug and related medical costs.” 

RELATED: Through spat with PBMs and insurers, pharma deflects drug price scrutiny 

The Pharmaceutical Research and Manufacturers of America, meanwhile, said that eliminating the rebate system could especially benefit seniors with chronic conditions like diabetes. 

“The proposal would also help to fix the misaligned incentives in the system that currently result in insurers and pharmacy benefit managers favoring medicines with high list prices,” PhRMA CEO Stephen Ubl said. 

Employers will be watching this issue closely as they evaluate the benefits they offer to staffers, the National Business Group on Health said in a statement. In the pricing proposal, HHS cites a recent NBGH survey that found 84% of employers believe it's time for a change in the pharma supply chain. Many of NBGH’s members have also taken steps to issue point-of-sale rebates, the group said. 

“The push for more straightforward, simple and streamlined supply-chain pricing and contracting is reaching a tipping point,” said Brian Marcotte, the group’s CEO.