Trump revives war with payers and PBMs over future of Medicare Part D rebates

Drug prices
Pharmacy benefit managers and insurers are on the defensive over the White House's push to revive a controversial rule to scuttle Medicare Part D rebates. (Getty/Tero Vesalainen)

Payers and pharmacy benefit managers are gearing up to try to stop the Trump administration’s push to revive a controversial rule that removes the anti-kickback safe harbor for Medicare Part D rebates.

Trump called on the Department of Health and Human Services (HHS) to revive the rule as part of a series of executive orders focused on drug prices. Insurance and PBM groups pounced on the order, saying it won’t lead to lower drug prices for seniors, and revived talking points over a rule the White House scuttled last year.

“This policy does nothing to address drug prices, it only services to create uncertainty and raise premiums for seniors while imposing nearly $400 billion in additional taxpayer costs,” said JC Scott, president of the PBM industry group Pharmaceutical Care Management Association, in a statement.

In 2018, HHS issued a proposed rule that would eliminate the safe harbor for Medicare Part D rebates from the federal anti-kickback law. The rule would create a new safe harbor for discounts offered at the point of sale.

HHS proposed the rule because it accused PBMs and insurers of driving up rebates to get a larger cut and that the discounts made by drug manufacturers don’t trickle down to patients.

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But the controversial rule sparked major pushback from the PBM and insurance industries.

Even though the rule had a major backer in HHS Secretary Alex Azar, the White House decided to scuttle it after concerns over reports it would raise premiums for Medicare Part D plans. Azar told Politico last year that he supported Trump’s move because the president doesn’t want to risk any move that would hike seniors’ premiums.

The executive order simply calls on HHS to revive the rule, but it does come with one simple caveat: It calls for HHS’ secretary to confirm that the rule will not raise premiums nor increase federal spending.

It remains unclear how HHS would come to such a confirmation.

The agency’s own actuary said in a 2018 analysis that the rule would increase federal spending by $196 billion through 2029, but average beneficiary costs and manufacturer concessions would decline.

“The minority of beneficiaries who utilized drugs with significant manufacturer rebates would experience a substantial decrease in costs, causing average beneficiary cost across the program to decline,” the agency’s actuary said.

The actuary also found that the rebate could boost Medicare premiums by 25%.

“Action must be taken to hold Big Pharma accountable for their out-of-control drug prices,” said Matt Eyles, president and CEO of insurance industry group America’s Health Insurance Plans, on Friday. “But the administration’s rebate rule takes us in the complete opposite and wrong direction and the administration’s own analysis confirms this assessment.”

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A 2019 report from the Government Accountability Office also found that PBMs retained less than 1% of the Medicare Part D rebates and passed the rest to plans.

“Plan sponsors in turn may use rebates to offset the growth in drug costs, helping control premiums for beneficiaries,” the report said.

HHS did not return a request for comment on the timing of rebooting the rule or how it will confirm it won’t raise spending or premiums.

But the order itself sets a marker for PBMs and insurers that this is a new priority, and experts say they need to be prepared in case the regulation gets finalized.

“Given the requirements that premiums not increase as a result of the proposal, now is the time for stakeholders to engage with their preferred approaches,” said Miryam Frieder, practice director at consulting firm Avalere.