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Will the Trump Administration’s Proposal to Stop Drug Rebates to Pharmacy Companies Reduce Drug Cost for Patients?

A new legislation proposed by the Trump administration aims at lowering the price of prescription drugs, especially the high cost of cancer drugs, for patients.
February 2019 Vol 5 No 1
Ron Baylor

In January 2019, the Trump administration issued a proposal to stop the use of drug rebates, which act like discounts, that drug makers give to companies that manage the sale of drugs to Medicare and Medicaid. This proposal, the administration says, will lower the cost that consumers pay on prescription drugs, according to an article published online in the Wall Street Journal on January 31, 2019.

This proposal will stop drug makers from giving rebates to third-party companies called pharmacy benefit managers, or PBMs, and instead give these discounts on prescription drugs directly to patients. Currently, PBMs negotiate confidential rebates (discounts) on prescription drugs called “brand-name” drugs, but not on generics. This proposal, instead, will encourage discounts from drug makers to go directly to patients when they buy prescription drugs.

Although drug companies set their own drug prices, they usually offer rebates for their drugs to reduce the cost that PBM companies and the US government (through Medicare and Medicaid) pay for prescription drugs. These rebates affect what drugs health plans offer, and what cost, or copay, patients have to pay.

“This proposal has the potential to be the most significant change in how Americans’ drugs are priced at the pharmacy counter, ever, and finally ease the burden of the sticker shock that millions of Americans experience every month for the drugs they need,” U.S. Health and Human Services Secretary, Alex Azar, said in a statement.

Medicare provides healthcare coverage for millions of Americans who are 65 or older. Medicaid is the federal program that provides healthcare to individuals with limited financial means, or those with low income who cannot afford private healthcare. These 2 programs cover a large part of the US population.

Because Medicare and Medicaid are such big purchasers of drugs, this new proposal can influence the whole private market and encourage private health plans to have discounts offered to their patients. This proposal may increase premiums for the Medicare Part D program by $3 or $5 a month, but the savings these Medicare beneficiaries would get when paying for prescription drugs would be much larger than the small increase on their monthly premium, Trump administration officials say.

Although it is expected that the large PBM companies will oppose this proposal, drug companies, by contrast, may support it. Recently, drug companies have been attacked about their high drug prices. By contrast, drug makers say that they have increased their rebates to PBMs, but these savings don’t translate to lower drug prices or lower copays for patients.

For example, in 2016, about $89 billion were paid in rebates to insurance companies, including Medicaid, private health plans, and Medicare Part D, according to a recent study, but this didn’t reduce costs to patients.

The Pharmaceutical Research and Manufacturers of America, the organization that represents drug makers, said in a statement, “We applaud the administration for taking steps to reform the rebate system to lower patients’ out-of-pocket costs.”

Public Health Advocates

Some public health advocates argued that a more direct approach is needed to reduce drug prices. “To solve the problem of high drug prices, ultimately we will need to challenge the source: the monopoly pricing power of Big Pharma,” Peter Maybarduk, Director of the Access to Medicines Program at Public Citizen, an advocacy group, said in a statement.

He thinks that a better approach would be to negotiate drug prices directly between the government and drug makers. It remains to be seen how this will affect patients. The proposal is now open to comments from the public. After that, if approved, the rule may become law as early as January next year.

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Last modified: March 19, 2019

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