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Trump administration drops law to end rebates for PBMs

Published on 11/07/19 at 03:31pm

The Trump administration has dropped plans to introduce a law which would end rebates on prescription drugs under Medicare.

The Trump administration has said it is abandoning plans to bring in a law which would eliminate the ‘discount safe harbours’ which make prescription drug rebates possible in the United States.

Currently, drug companies pay retrospective ‘rebates’ to pharmacy benefit managers (PBMs) and others in the supply chain who buy drugs at the wholesale list price.

This has caused problems in recent years as the compensation paid to PBMs is often linked to the ‘savings’ they create – in other words the gap between the list price paid upfront and the ‘net price’ they pay overall after rebates.

There is thus an incentive for PBMs to encourage the use of drugs with higher list prices over those in which the gap between list price and net price is smaller. This leads to pharmaceutical companies charging more for their drugs.

The proposed law would however end the ‘safe harbour’ protections under which rebates are allowed while also protecting discounts between those same entities if the savings were transferred to patients. The proposed law had featured as part of Trumps plan to lower prices on prescription drugs.

Now, the US Government has dropped the law, following backlash from payers, providers and PBMs, who said the ruling did not address the true source of the problem – pharmaceutical companies.

JC Scott, President and CEO of the PBM lobby group Pharmaceutical Care Management Association (PCMA) said: “We understand that high prescription drug prices are a burden for too many Americans… Only drug manufacturers have the power to set drug prices. We believe that the key to lowering drug costs is to enact policies that encourage greater competition.”

The dropping of the law has thus come as a win for PBMs and a blow for pharma. The win was reflected in the stock market as shares in PBMs surged on announcement of the news.

In explaining the government’s decision, Whitehouse spokesperson Judd Deere said in a statement “Based on careful analysis and thorough consideration, the president has decided to withdraw the rebate rule. The Trump administration is encouraged by continuing bipartisan conversations about legislation to reduce outrageous drug costs imposed on the American people, and President Trump will consider using any and all tools to ensure that prescription drug costs will continue to decline.”

The proposal had also faced backlash in government as critics claimed the law would be too expensive at a cost of $180 billion in the next decade.

Louis Goss

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