Skip to main content

HHS Proposal Could Kill PBM Rebates: Some Pleased, Others Concerned

Analysis  |  By Steven Porter  
   January 31, 2019

The proposal would end safe-harbor protections for the rebates drug manufacturers pay to PBMs and add safe-harbor protections for drug discounts offered directly to patients.

In a highly anticipated move to curb prescription drug prices, the Trump administration announced plans Thursday to effectively kill the rebates drug makers pay to pharmacy benefit managers.

The idea is to pass savings along to patients by increasing transparency, encouraging discounts given directly to consumers rather than middlemen, and prohibiting a compensation system that incentivizes annual price hikes, according to Health and Human Services.

"This proposal has the potential to be the most significant change in how Americans' drugs are priced at the pharmacy counter, ever, and finally ease the burden of the sticker shock that millions of Americans experience every month for the drugs they need," HHS Secretary Alex Azar said in a statement.

Currently, the rebates drug makers pay to PBMs are permissible because they are covered by safe-harbor protections under the Anti-Kickback Statute. This proposal, however, would do away with the safe harbor for prescription drug rebates paid by manufacturers to PBMs, Medicare Part D plans, and Medicaid managed care organizations. It would implement a fixed-fee model between PBMs and manufacturers and add a safe harbor for discounts offered directly to consumers.

While the rulemaking would not apply directly to commercial payers, it may affect how they conduct their business moving forward, as is commonly the case with HHS policymaking, a senior official with the HHS Office of Inspector General acknowledged Thursday on a call with reporters.

  • PBMs 'concerned': JC Scott, president and CEO of the Pharmaceutical Care Management Association (PCMA), which represents PBMs, released a statement saying his group is "concerned" eliminating the safe harbor for PBM rebates could ultimately lead to higher drug costs "unless there is a viable alternative for PBMs to negotiate on behalf of beneficiaries." Scott pointed to a consultant study and data from the Centers for Medicare & Medicaid Services as evidence that PBM rebates reduce costs.
  • PhRMA pleased: Stephen J. Ubl, president and CEO of the Pharmaceutical Research and Manufacturers of America (PhRMA), which represents the pharmaceutical industry, released a statement applauding the administration's efforts "to reform the rebate system," adding that Thursday's proposal would "fix the misaligned incentives" that prompt insurers and PBMs alike to favor drugs with high list prices.
  • 'Good news' for those with diabetes: Cynthia Rice, senior vice president of advocacy and policy at JDRF, which supports research on Type 1 diabetes, released a statement saying the proposal "is good news for people with diabetes" because the rebates drug makers provide account for about 70% of the list price for insulin. "It is unconscionable for anyone to struggle to access insulin," Rice added.
  • A sign of progress? David Mitchell, founder of Patients For Affordable Drugs (and a cancer patient himself), released a statement praising the proposal as a sign of progress. “The proposed rule is a serious step forward," Mitchell said. "It would begin to rid our system of secret deals between drug companies and pharmacy benefit managers that drive up prices and hurt patients." The proposal stops short of reducing prices for sole-source drugs, he noted, calling for more action on Medicare Part D and Part B.

Azar touted the proposal Friday morning during a speech delivered at the Bipartisan Policy Center in Washington, D.C.

More more detail on the proposal, read the HHS press release, fact sheet, and proposal itself.

Editor's note: This story was updated Friday, February 1, 2019, with additional commentary from stakeholders.

Steven Porter is an associate content manager and Strategy editor for HealthLeaders, a Simplify Compliance brand.

Get the latest on healthcare leadership in your inbox.