HHS finalizes rule to eliminate drug rebates in Medicare Part D to lower drug prices

Today, in response to President Trump’s July 24, 2020 Executive Order on “Lowering Prices for Patients by Eliminating Kickbacks to Middlemen,” Health and Human Services 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.

HHS noted that in 2019, Part D rebates totaled $39.8 billion, representing an average discount of nearly 30% 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 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 and Part D plans from safe harbor protection under the Anti-Kickback Statute, HHS said that 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," said HHS.

AAM and its Biosimilars Council commended the Administration’s effort to remove what it called “perverse rebate incentives now blocking competition in the U.S. prescription drug marketplace,” but AAM also said that further action is necessary to modernize the Medicare Part D program and ensure that patients and taxpayers realize the full value of lower cost generic and biosimilar medicines.

“Generic and biosimilar medicines are the proven solution to the burden of expensive brand drugs, expanding access and reducing costs for patients and taxpayers while protecting incentives for pharmaceutical innovation. Yet, the so-called “Most Favored Nation” proposal would undermine future competition from these FDA-approved medicines. We encourage Congress and the Administration to promote savings through generic and biosimilar competition by modernizing the Medicare Part D program, supporting incentives for biosimilar and generic adoption, and ensuring that generics and biosimilars are able to enter the market at the earliest possible date. We look forward to working with the Biden administration and Congress to develop solutions to ensure that America’s seniors and taxpayers are getting the most out of each dollar they spend,” AAM said.

Pharmacy groups, including the National Community Pharmacists Association, the American Pharmacists Association, the National Association of Specialty Pharmacy, FMI-The Food Industry Association; and the National Grocers Association issued the following statement on the Trump administration’s new final rule on prescription drug rebates:

“While we want our patients to pay less for their prescription drugs, this rule does not accomplish that. It will likely increase their insurance premiums and out-of-pocket costs, and may limit patients’ access to care by forcing more pharmacies to close. We have repeatedly provided evidence that any action on prescription rebates must also address pharmacy DIR fees. Pharmacy DIR fees are causing patient prescription drug costs to soar and limiting patient access to care as more pharmacies are forced to close. Our organizations have previously weighed in on the possible dire impact of rebate reform on pharmacies, namely late payments, lack of transparency to pharmacy reimbursement or chargeback amounts at the point of sale, unclear regulatory oversight, and costs associated with implementing such system outlined in the final rebate rule. Without pharmacy DIR fee reform, the impact of implementing a system to pass rebates onto patients at the pharmacy counter may prove disastrous for patients and pharmacies.”

The statement continued, "Pharmacy DIR fees are growing beyond CMS’ projection of 10% year-over-year. This growth of pharmacy DIR fees is especially unsustainable during the current COVID-19 public health emergency when our members, representing every aspect of the pharmacy industry, care for patients while also providing access to COVID-19 tests and working to provide access to vaccines."