WASHINGTON — The Trump administration Thursday unveiled a plan to channel now-hidden prescription drug discounts directly to patients, saying that would eventually lower prices for consumers.
The proposed regulation from Health and Human Services Secretary Alex Azar aims to eliminate behind-the-scenes rebates among drugmakers, middlemen and insurers and instead encourage that they be paid directly to consumers when they buy their medications.
The idea is to do away with a hidden cost seen as contributing to artificially high list prices for prescription drugs. The proposal was co-authored with the Health and Human Services inspector general’s office.
The proposal comes as President Donald Trump is under political pressure to deliver results on his repeated promises to slash prescription drug costs. Democrats in Congress want to empower Medicare to directly negotiate prices with drug companies, but Republicans prefer a market-based approach that keeps the government out of setting prices.
But the impact for consumers may not be immediate, since the changes would take effect over the next year if all goes according to plan. Also, drugmakers do not currently provide discounts for all their medications.
“Americans — particularly our seniors — pay more than they need to for their prescription drugs because of a hidden system of kickbacks to middlemen,” Azar said in a statement. “President Trump is proposing to end this era of backdoor deals in the drug industry, bring real transparency to drug markets, and deliver savings directly to patients when they walk into the pharmacy.”
Prices for brand-name drugs have continued to rise, although data shows the total number of price hikes this year is somewhat lower than at the same time in 2018, and the overall percentage increase isn’t as steep. Facing heavy criticism from Trump and Democrats, some drugmakers have pledged to take fewer or smaller increases as the industry tries to avoid government regulation.
Thursday’s proposal applies directly to Medicare prescription drug plans and Medicaid managed care plans, but administration officials say they believe the impact will eventually be broader.
Insurers and middlemen like CVS CVS, -2.82% and Express Scripts oppose the idea, saying that the discounts from drugmakers are used to keep premiums lower for everybody.
HHS officials acknowledge that Medicare prescription premiums could go up by $3 to $5 as a result of the change, but said they expect greater savings for people purchasing medications. Those patients would see their copays and cost-sharing reduced when they go to fill a prescription.
On rebates, drugmakers have been supportive of the administration’s approach, but the industry vehemently disagrees with other Trump ideas, including an experiment using lower international prices to cut Medicare costs for some drugs.
Thursday’s complex proposal would work by doing away with an exemption from federal anti-kickback rules that currently allows drugmakers, insurers and middlemen called pharmacy benefit managers to negotiate rebates among themselves.
It would be replaced with a new exemption for discounts offered directly to consumers.
HHS says today’s hidden rebates can amount to 26 percent to 30 percent of a drug’s list price.
Azar contends that under the current system everybody but the patient benefits from high prices. A high list price makes room for bigger negotiated rebates for insurers and middlemen. And drugmakers then merely build that expectation into their prices.
By doing away with hidden rebates, Azar says he’s hoping to force the industry to lower its prices. Democrats, however, say pharmaceutical pricing is a like a black box, and there’s no guarantee prices reflect the actual costs of research, development and manufacturing.
Consumers are worried about prices for brand-name drugs, particularly new medications that promise breakthrough results. Generics account for nearly 90 percent of prescriptions filled, but brand-name drugs account for more than 70 percent of the spending.
Before joining the Trump administration, Azar was a top executive for drugmaker Eli Lilly LLY, +2.50% . That led to criticism that he would be an industry pawn. But some of his actions — such as using international pricing for some Medicare drugs — have angered the industry.