HHS has proposed to eliminate drug kickbacks and rebates passed from manufacturer to pharmacy benefits manager (PBM), instead requiring those types of savings to be passed directly to patients. Rebates "ought to lower costs to patients, and this is a good first step towards that goal", Sen.
On Thursday, the Department of Health and Human Services (HHS) said it's proposing a rule that would effectively ban some payments between big pharma companies and middlemen that have been blamed for driving up drug prices.
Nonetheless, the administration's proposal appears to be in the mix as Congress gears up to craft legislation addressing prescription drug costs.
A senior HHS officials said on a call with reporters, though, that because Part D "is such a premium-sensitive market", the department expects plan sponsors "are going to negotiate more aggressively or make other changes such that they won't have to increase premiums while still passing on lower costs at the pharmacy counter".
Yesterday's proposal will result in significant changes to the current drug pricing and rebate structure, which is a bit of a labyrinth (see this week's Chart Review below).
Manufacturer rebates total $29 billion under Medicare's Part D drug program, and $150 billion across the industry, according to Azar.
Instead, drugmakers and PBMs would be pushed to provide those rebates in the form of discounts directly to patients at the pharmacy counter.
Fixed fee payments from manufacturers to PBMs for the services that PBMs provide those manufacturers.
The healthcare industry is divided on the proposal.
This proposal should lower the overall list price of a drug because it limits how much a PBM can benefit from a rebate.
Drugmakers now pay out more than $100 billion in rebates annually.
Representatives of pharmacy benefit manager companies were less pleased, saying the changes could impact access to medicines for Medicare users.More news: Meet the Kansas City Chiefs players who signed futures contracts
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CVS Health's PBM, CVS Caremark (the nation's second-largest), went through a public spat last week with Walmart.
Cigna just closed its acquisition of Express Scripts, the country's largest PBM, for $67 billion.
In its Q4 report, UnitedHealth Group said its PBM, OptumRx, grew revenues by 9.1% for the year to almost $70 billion.
To be sure, there's still a fair amount to be worked out. The proposed effective date of this regulatory modification is January 1, 2020, although HHS has sought comments regarding whether this allows sufficient time for parties to restructure existing arrangements. And it's not clear how the new regulation would affect the health-insurance plans provided by employers to their workers, because it doesn't directly apply to those health plans.
"Rebates have been a key driver in keeping premiums low for all Medicare beneficiaries, so any changes to the impact of rebates in the [Medicare Advantage] market will increase premiums, which will drive up costs for [the government] and the program as a whole", the company said in a statement to NPR.
While the out-of-pocket cost for many people picking up drugs at the pharmacy would decline, the premiums they pay for coverage would rise.
The Pharmaceutical Care Management Association, which represents pharmacy benefit managers, and America's Health Insurance Plans, an industry group for insurers, said Thursday that the proposal could increase consumers' expenses.
This latest proposal will eliminate the PBM's rebate, which disincentivizes any list price hikes. "We are not middlemen - we are your bargaining power, working hard to negotiate lower prices".
The changes would create a new legal exemption for prescription drug discounts that are offered directly to patients.
Azar says the change, if implemented, will encourage drug companies to cut their list prices to compete for business. The group said it favors the proposal.
Rebates for prescription drugs now account for 26%-30% of a drug's list price, on average, according to the fact sheet. Patients' cost sharing is often based on list prices, not the cost of the drug after rebates.