CBO: HHS' rebate rule would boost federal spending by $177B, lead to higher Part D premiums 

The Trump administration’s plan to end legal protections for drug rebates in a move to curb costs would actually boost Part D premiums and federal spending, according to the Congressional Budget Office. 

The CBO scored (PDF) the plan as part of its budget projections for 2019-2029, and it estimates that the rule, if implemented in its current form, would increase federal spending by $177 billion between 2020 and 2029. 

Because Part D plan sponsors often use the savings from rebates negotiated by pharmacy benefit managers (PBMs) to lower premiums across membership, premiums would also go up as a result of the rule. This would impact federal spending, too, as the federal government subsidizes 74.5% of premiums in Part D, the CBO said. 

“CBO expects that rather than lowering list prices, manufacturers would offer the renegotiated discounts in the form of chargebacks,” the group wrote in its analysis. 

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The Department of Health and Human Services (HHS) proposed eliminating anti-kickback safe harbors extended to PBMs for rebate negotiations and instead extend them to point-of-sale discounts. 

Opponents of the rule argued that it targets the wrong piece of the pharmaceutical supply chain, as it does not put pressure on drug companies to lower their prices, and warned that eliminating rebates could drive up premiums for Medicare beneficiaries. 

Indeed, these groups were taking a victory lap following the CBO’s report. The Campaign for Sustainable Rx Pricing, an organization that includes big-name providers and payers, said in a statement that the rule amounts to a “reward” for pharmaceutical companies that engage in anti-competitive behavior. 

“Not only does the rebate rule reward Big Pharma for its anti-competitive tactics, there is nothing in the rule that guarantees that drug manufacturers will lower prices by the full amount of existing rebates,” Lauren Aronson, the group’s executive director, said. “Big Pharma’s track record proves that given the ability to raise prices, they will do just that.” 

The group urged HHS to focus on some of its other efforts, such as those around transparency, to bring down drug costs. 

RELATED: Azar says HHS is still committed to addressing PBM rebates 

JC Scott, CEO of the Pharmaceutical Care Management Association, the PBM trade group, said in a statement that the report affirms their messaging. 

“The CBO analysis confirms that the proposed rule on prescription drug rebates will not achieve the administration’s state goal of reducing prescription drug prices,” Scott said. 

Drug companies, meanwhile, have pushed for the rule. When it was proposed in January, the Pharmaceutical Research and Manufacturers of America said in a statement that ending rebates addresses "misaligned incentives" in the supply chain.

"These types of reforms will especially help patients with chronic diseases, such as diabetes patients who rely on insulin, who are often not benefiting from significant rebates and discounts," CEO Stephen Ubl said.

In addition, pharmaceutical company CEOs backed the rule when testifying at a Senate hearing in late February.

The CBO notes in the report that these estimates are based on the proposed rule in its current form, so it could be finalized in a modified form. HHS could also choose not to finalize the rule at all, the CBO said. 

As the comment period closed at the beginning of April, the CBO projects that a final rule would be released in mid-June at the earliest.