Trump administration to eliminate safe harbors for drug rebates to PBMs

The Trump administration wants to eliminate safe harbor protections for drug rebates negotiated by pharmacy benefit managers and instead offer those protections to discounts passed directly to consumers. 

The long-awaited rule (PDF), released Thursday evening, was under review at the Office of Management and Budget dating back to the summer.

Department of Health and Human Services Secretary Alex Azar said in a statement that eliminating the safe harbors would increase transparency in the black box of the pharmacy supply chain. 

“Every day, Americans—particularly our seniors—pay more than they need to for their prescription drugs because of a hidden system of kickbacks to middlemen,” Azar said. “President Trump is proposing to end this era of backdoor deals in the drug industry, bring real transparency to drug markets and deliver savings to patients directly when they walk into the pharmacy.” 

PBMs have shouldered a significant amount of blame in the public discourse over rising drug prices. Azar has been both a critic and defender of PBMs and the rebate system they operate in, saying that pharmacy benefit managers will be key partners in reforming the drug supply chain but also that they’re an impediment to change

Drug rebates negotiated by PBMs are, at present, protected from Stark Law and anti-kickback statute challenges. HHS is calling instead to offer those protections for discounts that are passed on to patients, saying it could especially benefit Medicare Part D patients with high out-of-pocket costs.

RELATED: Express Scripts hits back at criticisms of PBMs, says it ‘would do just fine’ without drug rebates 

PBMs take the savings from negotiated rebates and typically apply it broadly across premiums instead of directly passing each discount on to their members at the counter. 

In a statement, the Pharmaceutical Care Management Association CEO JC Scott said that eliminating the safe harbor protections could lead to concerns about access to some drugs. Scott highlighted several studies that indicate PBMs are not to blame for rising drug costs.

“Any proposals to eliminate PBM-negotiated rebates must consider the impact it will have on Medicare beneficiaries' access to affordable prescription drugs and costs to taxpayers,” Scott said. 

In addition to allowing safe harbors for savings directly to consumers, HHS is proposing protections for fixed fee agreements between pharmaceutical companies and PBMs. In this protection, service fees drug companies pay to PBMs for services applicable only to the manufacturer—not a payer—would be covered if they meet certain criteria. 

On a call with reporters, a senior official at HHS said that the goal of the rule is to “correct the perverse incentives” in the drug supply chain that can lead to exclusive formularies and higher costs for patients. The official said the rule may be “the single most significant reform ever implemented” in addressing the way drugs are priced and paid for. 

“We know that the incentives in the current system lead to higher list prices,” the official said. “Everyone in the supply chain benefits—except for the patient—when list prices go up.” 

RELATED: HHS reviewing reforms to Anti-Kickback Statute in addition to Stark Law

A senior official at the HHS Office of Inspector General said on the call that while the rule mainly impacts PBM rebates paid to members of federal payers, the rulemaking could have ripple effects in the commercial sector. 

The OIG official said the agency is seeking feedback on the potential impacts of the change. 

The HHS official said the agency is targeting Jan. 1, 2020 to end the existing safe harbors and to launch the new ones within 60 days of the rule’s finalization. That said, PBMs and drug companies can begin these negotiations “now,” the official said, to bring down prices.