President Donald Trump made bringing down high drug prices a priority even as a candidate. On Thursday, his administration announced what might be its biggest move yet on that front. A proposed rule would outlaw the current system of drug-price negotiation in some government programs, in a step toward reforming an opaque system that has been blamed for higher costs.
Under the current system, drugmakers pay rebates to pharmacy benefit managers — the group of companies that negotiate prices on behalf of health care providers — in order to secure market share. Those rebates get passed on to plan providers, which generally use them to reduce the premiums paid by patients. They’re also are a source of profit for the PBMs, which keep a slice of rebates or take other related fees from clients and drugmakers.
The proposed rule would end the use of these type of rebates in Medicare Part D and Medicaid managed-care plans, which cover upwards of 50 million Americans. As written, it should go a ways toward eliminating market distortions and help some patients. But when proxies for the pharmaceutical industry are cheering a policy on, as they are in this case, it’s a sign that this isn’t a simple win. Every health care policy comes with trade-offs, and this one is no exception.
One problem with the way things work now is that it can encourage PBMs to favor the most expensive and heavily rebated drugs over more cost-effective treatments. It also creates an incentive for drugmakers to boost the list prices they charge in order to increase rebates and secure PBM favor. Those rebates often don’t fully factor into the price charged to health-plan beneficiaries who pay a certain portion of drug costs themselves. People in the deductible phase of plans or who have to pay co-insurance for expensive drugs are subjected to a formula based on the artificially inflated pre-rebate list price instead of the negotiated net price that their health plan actually pays.
The government plan would end the exemption from anti-kickback rules that enables the current rebate system. Instead, it will only allow rebates that are fully passed on to consumers. It would also prohibit deals between PBMs and drugmakers that are based on sales volume in favor of fixed-fee arrangements.