Trump Administration Seeks to Lower Prescription Medication Costs with New Regulation

On Friday, the Department of Health and Human Services (HHS) announced a rule to eliminate incentives that reward prescription drug list price increases. The HHS’ fact sheet explains that the finalized rule “encourages” manufacturers and parties upstream of consumers to lower list prices in order to reduce out-of-pocket spending on prescription medications. The rule was issued per a July directive put out by President Trump, entitled “Lowering Prices for Patients by Eliminating Kickbacks to Middlemen.”

The HHS points to three problems with the status quo, “characterized by high prices and backdoor deals,” the announcement said. The HHS explains that, currently, rebates reward ever-escalating list prices, drug manufacturers pay pharmacy benefit managers (PBMs) rebates and other payments, but these are not passed on to patients, and the current system discourages the use of lower-priced generics and biosimilars.

Now, the HHS seeks to tackle what it calls a “perverse incentive” by propounding its new regulation. The change in federal law reportedly works by “excluding rebates on prescription drugs paid by manufacturers to pharmacy benefit managers (PBMs) and Part D [drug coverage] plans from safe harbor protection under the Anti-Kickback Statute (AKS).”

The rule also contains safe harbor provisions protecting discounts at the pharmacy counter and fixed-fee service agreements between manufacturers and PBMs. These changes are intended to create a “system that offers true discounts reflected at the point of sale,” particularly during the coinsurance or deductible phases of plans’ benefits.

For Americans with Medicare, “[r]eplacing safe harbor protections for opaque rebates with transparent discounts is expected to lead to lower Part D spending for Medicare beneficiaries as a whole, because the projected reductions in out-of-pocket costs are larger than potential increases in premiums,” the fact sheet states. The new rule becomes effective Jan. 1, 2022.