Trump administration tosses drug rebate rule

Drug prices
The Trump administration has killed its plan to eliminate safe harbors for drug rebates. (Getty/Charles Wollertz)

The Trump administration has killed its plan to eliminate safe harbors for drug rebates, dealing a blow to the pharmaceutical industry. 

A White House spokesman confirmed to FierceHealthcare on Thursday that the controversial rebate rule is dead after "careful analysis and thorough consideration," declining to elaborate. The change was first reported by Axios.

"The Trump administration is encouraged by continuing bipartisan conversations about legislation to reduce outrageous drug costs," said White House Spokesman Judd Deere. 

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Under the rule, the Department of Health and Human Services would lift safe harbor protections from drug rebates negotiated by PBMs and instead offer them for pass-through discounts.

This follows significant pushback from payers, pharmacy benefit managers and providers, who warned that nixing the safe harbors in Part D could lead to higher premiums for patients.

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

PBM and insurer industry groups also warned that ending rebates doesn't target the true source of the problem: pharmaceutical companies.

"Only drug manufacturers have the power to set drug prices," according to a statement from PBM lobbying group Pharmaceutical Care Management Association. "We believe that the key to lowering drug costs is to enact policies that encourage greater competition."

The Campaign for Sustainable Rx Pricing—a coalition of hospital, insurer, PBM and physician groups—took a victory lap after the announcement, calling it a "big win."

"We applaud the administration for seeing through Big Pharma’s blame game and making the right call to withdraw this controversial rule," the group said in a statement.

Eliminating the rebate rule is a blow to the pharma industry, which backed the plan and took great lengths to shift blame for rising drug prices to PBMs and insurers.

A report from the Congressional Budget Office suggested that eliminating the rebates would increase Part D premiums and federal spending.

Related: PCMA report says HHS rebate rule would significantly boost drug, Part D spending

But the rule had a major proponent in HHS Secretary Alex Azar, who repeatedly called such rebates "kickbacks." Azar, a former pharmaceutical executive, said that rebates have created a perverse incentive to raise drug prices. 

Azar has said at multiple events that drug companies keep prices high in order to get on PBM and insurer formularies. PBMs and insurers will only allow high-price drugs because they get a cut of the rebate.

"We believe today’s rebates, which help drive list prices skyward, are not necessary to a strong negotiating ecosystem," Azar said last November during a speech at the National Academy of Medicine. "They could be replaced with a model driven by fixed-price, upfront discounts."

HHS said in a statement on Thursday that Azar and Trump are still taking "bold action" on lowering drug prices such as how to safely import cheaper drugs and boost transparency.

Related: Trump hints at executive order to create 'favored nation' clause to tie drug prices to low prices paid overseas

However, the decision is the latest setback for the agency's efforts to lower drug prices this week. A federal judge on Tuesday blocked HHS' final rule that drug companies put the list price in direct-to-consumer ads. 

President Trump also said that he will unveil in the next two weeks an executive order to install a "favored nations" clause to ensure the U.S. doesn't pay more than other countries on drug prices. The White House has not elaborated on what the clause will apply to or when the order will drop.

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