Today, in response to President Trump’s July 24, 2020 Executive Order on “Lowering Prices for Patients by Eliminating Kickbacks to Middlemen,” HHS Secretary Alex Azar and the HHS Office of Inspector General finalized a regulation to eliminate the current system of drug rebates in Medicare Part D, in order to create incentives to lower list prices and reduce out-of-pocket spending on prescription drugs by delivering discounts directly at the pharmacy counter.
Savings to patients may be nearly 30 percent: In 2019, Part D rebates totaled $39.8 billion, representing an average discount of nearly 30 percent for brand drugs.
“Every year, Americans have suffered from drug prices driven constantly upward by a shadowy system of kickbacks, and the President is putting an end to that,” said HHS Secretary Alex Azar. “With the final rebate rule, we are taking on a broken system and delivering big discounts directly to American patients. Our action on rebates has the potential to be the most sweeping change to how Americans’ drugs are priced at the pharmacy counter, ever, by delivering discounts directly to patients and bringing much-needed transparency.”
By expressly excluding rebates on prescription drugs paid by manufacturers to pharmacy benefit managers (PBMs) and Part D plans from safe harbor protection under the Anti-Kickback Statute (AKS), the final rule addresses a perverse incentive identified by the Department. The rule creates a new safe harbor protecting discounts reflected at the point of sale, which can benefit patients at the pharmacy counter, and creates new safe harbor protection for fixed-fee services arrangements between manufacturers and PBMs.
Notably, the average difference between the list price of a drug and the net price after a rebate is nearly 30 percent for brand drugs. These rebates, negotiated in Medicare Part D by private plans, are typically not used to reduce patients’ cost sharing for a particular drug.
- If the patient is spending out-of-pocket up to their deductible, they pay the amount agreed to between the plan and the pharmacy, usually based in some way on the drug’s list price and not taking into account rebates to plans.
- If a patient is paying co-insurance, as is common for expensive specialty drugs, they pay it as a percentage of the amount agreed to between the plan and the pharmacy, usually based in some way on the drug’s list price, and whether the plan received a rebate does not typically affect the price.
- In some cases, a patient’s cost sharing alone can actually be higher than the net price paid by the health plan after rebates.
Amending the safe harbor regulations to offer protection for reductions in price that are reflected at the point of sale, the rule provides a strong incentive for drug manufacturers to offer discounts that directly benefit patients by lowering their out-of-pocket costs at the pharmacy counter. Lower list prices and upfront discounts translate to beneficiary savings during the deductible, coinsurance, and coverage gap phase of the Part D benefit.
Delivering relief from the high cost of prescription drugs has been a focus of President Trump and Secretary Azar. The rebate rule tackles a number of the issues raised in the American Patients First drug pricing blueprint, released by President Trump in May 2018 and developed by HHS under Secretary Azar’s leadership, such as lowering out of pocket costs, improving negotiation, and stimulating competition through generic and biosimilar adoption.
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