HHS Proposed Rebate Rule

Josh Bindl  •   February 4, 2019

After several mentions over the past few months, on January 31, 2019, the Department of Health and Human Services (HHS) released a proposed rule to lower prescription drug prices and out-of-pocket costs by encouraging manufacturers to pass discounts directly on to patients. Some details were provided in the announcement; however, many questions remain.

The HHS proposal would expressly exclude from safe harbor protection under the Anti-Kickback Statute rebates on prescription drugs paid by manufacturers to pharmacy benefit managers (PBMs) for Medicare and Medicaid. The HHS rule only applies to governmental programs, although the administration has encouraged Congress to consider legislation to expand to the rest of the commercial market.

This proposed legislation would replace rebates with a new safe harbor for prescription drug discounts offered directly to patients, as well as fixed fee service arrangements between drug manufacturers and PBMs. Clarity is needed to determine what this fixed fee service arrangement would look like.

The proposed rule calls for a January 1, 2020 effective date. For plan sponsors, there is nothing you need to do now to prepare. There is a 60-day initial comment period and much discussion before the rule would go into effect. As time passes and questions are answered, we will know more about any impact this may have on self-insured plan sponsors.

Congress would need to take action for the principles of this rule to be forced on the commercial market. While reducing prescription drug prices is an issue republicans and democrats can agree on, it is unlikely swift action will occur.

It cannot be overstated how large of a step this would be for the marketplace. All PBMs would need to renegotiate their contracts with pharma and soon after renegotiate their contracts with plan sponsors. Questions remain on how those negotiations would play out. How much of the current rebate value would pharma try to claw back if this new rule is forced on PBMs and their backs are against the wall to complete a contract?

There is also the issue of benefiting a few at the cost of many. Rebates are only generated on a small number of drugs. These are often high cost medications taken by individuals managing chronic conditions. Eliminating the rebate value on these drugs lowers costs to those who are often high utilizers of the plan. If no cost share adjustment is made, these high utilizers will see value in reduced out of pocket costs. As a result, everyone on the plan would need to pay increased premiums to pay for the loss in rebate value received.

While we would strongly welcome an alternative to our current rebate system, it’s important to consider all the consequences and provide time for the industry and plan sponsors to adjust. The suggested timeline seems aggressive for such a significant industry change.

National CooperativeRx is closely monitoring this situation and will provide updates as it develops. We are also continually considering additional ways to add value for membership, including alternative pricing models. For example, we have already begun discussions with CVS/caremark on their new guaranteed net cost model to analyze if it can be of value to our membership.

If the HHS rebate rule does impact the commercial market, the good news is contract renegotiations will be done leveraging the largest PBM purchasing power with CVS/caremark and the Cooperative’s 320,000 member lives. We are confident we would achieve a strong outcome.

More information can be found on the administration’s fact sheet and in the proposed rule.