White House

Azar touts rebate proposal as solution to 'broken' system

The proposal would create safe harbors under the anti-kickback statute for upfront discounts to patients and flat service fees to PBMs

Secretary of Health and Human Services Alex Azar testifying at a hearing called "Prescription Drug Affordability and Innovation: Addressing Challenges in Today's Market" in front of the Senate Finance Committee in the Dirksen Senate Office Building Tuesday, June 26, 2018 (Sarah Silbiger/CQ Roll Call file photo)

Health and Human Services Secretary Alex Azar on Friday pitched a proposal he released the day before as a major step in reforming the complex system of the prescription drug supply chain and lowering prices.

The proposed rule released by HHS and the Office of the Inspector General Thursday would eliminate federal protections for manufacturer rebates paid to health plans and pharmacy benefit managers under federal health programs, although Azar expects the rule would also trigger changes in the commercial market. The proposal would instead create safe harbors under the anti-kickback statute for upfront discounts to patients and flat service fees to PBMs.

“Today’s system is set up in the shadows, to serve entrenched interests — drug companies who set these prices so high, and the pharmacy benefit managers who receive tens of billions of dollars in rebates without patients ever knowing where the money goes,” he said in a speech at the Bipartisan Policy Center.

Manufacturer rebates total $29 billion under Medicare's Part D drug program, and $150 billion across the industry, according to Azar.

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“How can you possibly defend this catastrophically broken status quo that rewards higher prices, conceals kickbacks to middlemen, and denies seniors tens of billions of dollars of savings at the pharmacy counter?” he said.

HHS is seeking public comment on six different scenarios detailed in the proposal. Generally, Part D premiums are expected to increase around $3 to $5 per patient monthly. But consumers’ savings from total cost-sharing will exceed the additional costs. The sickest patients — those who use the most prescriptions — are expected to benefit the most, while healthier patients might not see overall savings.

Azar expects plans to keep premiums flat, since Part D patients are particularly sensitive to changes in premiums. A disagreement over the issue between Azar and Joe Grogan, who was the top health official at the Office of Management and Budget until this week when he was promoted to lead the Domestic Policy Council, is one reason the rule was stalled at OMB since July. Azar declined to address the dispute during a discussion with reporters Friday.

While removing the safe harbor doesn’t necessarily make rebates illegal, Azar expects the rule would “lead to a comprehensive reshaping” of the drug supply chain in the commercial space as well as Medicare and Medicaid.

“Remember, the same players are doing commercial and doing Medicare,” he told reporters. “So that’s a very difficult case to segregate and they’ll be looking very carefully at that. That tends to impact commercial behavior as a result.”

He also added that around 30 states already have their own anti-kickback statutes that apply to commercial markets.

Still, Azar is urging Congress to go further and extend similar restrictions directly to commercial arrangements. He declined to say whether he was working on any specific legislative proposals.

Middlemen like pharmacy benefit managers have been vilified by both sides but several key Democrats largely pushed back against the proposed rule Thursday, casting doubt on whether there will be bipartisan consensus on the issue.

“Experience tells us that merely trusting Big Pharma to lower its drug prices for consumers is not a solution, it’s a prescription for more of the same. Under the Trump Administration’s proposal, Big Pharma could see even bigger profits and even less restraint on what they charge seniors,” House Speaker Nancy Pelosi said in a statement. “President Trump must work with Congress to deliver the real, tough legislation needed to actually drive down the price of prescription drugs for seniors and families across America.”

Azar however, believes pharmaceutical companies — who largely applauded the proposal — will take the brunt of reduced profits. He expressed hope that Democrats would work with him on this and the administration’s other drug pricing proposals.

“If you want to oppose these changes, you must have an alternative to the status quo,” he said. “You cannot defend what is happening in the current status quo.”

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