HHS May Alter Rebate Rules for PBM Drug Middlemen

Kerry Dooley Young

July 20, 2018

The White House is reviewing a proposal for changing rules related to rebates for pharmacy benefit managers (PBMs), an industry that's drawn intense scrutiny in the national debate about rising drug costs.

The White House's Office of Information and Regulatory Affairs (OIRA) this week received a proposed rule about PBM rebates from the Department of Health and Human Services (HHS).

Lawmakers and policy officials have in recent months cited concerns that consumers don't benefit enough from rebates provided to PBMs, which serve as middlemen in negotiations for insurers and employers with pharmaceutical companies.

There's no legal deadline for the office's review of the pending rule on PBM rebates, and agencies' proposals have been known to linger under wraps for weeks or months at OIRA. But HHS has signaled that there's great interest in publishing the PBM rule, as the Trump administration presses forward with a number of initiatives to address drug costs.

HHS national spokeswoman Caitlin Oakley said the White House's May report on drug prices shows a clear intention to consider removing so-called safe harbor protections for rebates. "Safe harbor" regulations are used to shield certain payments and businesses that potentially could cross the anti-kickback statute.

The proposed rule is titled Removal of Safe Harbor Protection for Rebates to Plans or PBMs Involving Prescription Pharmaceuticals and Creation of New Safe Harbor Protection.

"It should not come as a surprise that this would require rulemaking," Oakley said in an email to Medscape Medical News.

President Donald J. Trump has been open in his criticism of PBMs. In unveiling the White House's May report on drug prices, he called for "eliminating the middlemen" who had become "very, very rich. They won't be so rich anymore," he said.

The White House report, also known as a blueprint, identified machinations around list prices for drugs as a reason why many consumers struggle with pharmacy bills.

"What had been a hidden negotiation and wealth transfer between drug manufacturers and PBMs is now a direct increase on consumer out-of-pocket spending that likely decreases drug adherence and health outcomes," the White House said in the report.

OIRA has designated the pending rule on PBM rebates as being "economically significant," which means it is likely to have an annual effect on the economy of $100 million or alter the economy in a material way.

That "economically significant" designation indicates that HHS may seek to eliminate rebate practices, with the exception of those linked to value-based purchasing arrangements, wrote John Leppard, an analyst with Washington Analysis, in a note. HHS' draft rule may be scaled back before it is finalized, according to Leppard.

"We remain skeptical that HHS will ultimately finalize a wholesale elimination of PBM rebate practices," he said. "Very few stakeholders called for this step in the comments submitted as part of the Trump administration's blueprint on lowering drug prices."

As of Wednesday afternoon, there was muted reaction in the stock market. Shares of PBM-giant Express Scripts slipped by 1.5% in Wednesday trading, when major stock indexes such as the Dow Jones Industrial Average were also trading lower than they had the day before. Shares of pharmacy giant CVS, which also has a PBM business, slipped 2.6%.

The trade group for PBMs, the Pharmaceutical Care Management Association (PCMA), on Thursday said there are "several troubling questions" about the proposed HHS rule.

In a statement, PCMA Chief Executive Mark Merritt urged HHS to consider points that the trade group had recently submitted about potential changes to rebates. He cited "significant concerns as to whether there are any viable alternatives to rebates, in light of drug manufacturers' inability to offer upfront discounts under current antitrust case law."

Merritt also questioned whether HHS has the authority to change the safe-harbor provisions through regulations.

"The statutory exception for discounts to the Anti-Kickback statute protects rebates and any changes would require an act of Congress," PCMA's Merritt said.

HHS Secretary Alex Azar may have been working to lay the groundwork for such a change in his June appearance before the Senate's health committee. At the hearing, Azar focused intently on PBMs and the complex negotiations around drug prices. PBMs have a vested interest in keeping list prices for drugs high, he said.

"Right now, everyone in the system makes their money off of a percentage of list prices: both drug companies and pharmacy benefit managers, who are supposed to keep prices down," Azar said. "Everybody wins when list prices rise — except for the patient."

Azar also told the senators that it may be preferable to have "a system without rebates, where PBMs and drug companies just negotiate fixed-price contracts.

"Such a system's incentives, detached from artificial list prices, would likely serve patients far better," Azar said.

Alicia Ault contributed to this story.

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