Trump’s Ambitious Plan to Overhaul the Drug Purchasing System

PoliticoPro: By Sarah Karlin-Smith and Sarah Owermohle

The Trump administration on Thursday proposed an ambitious overhaul of the drug purchasing system in its latest bid to lower the cost of medicines.

The United States Health and Human Services Department (HHS) proposed eliminating a legal exemption and making the rebates drugmakers give insurance plans and pharmacy benefit managers subject to fines under the federal anti-kickback statute. It plans to create a new exemption for prescription drug discounts that are offered directly to patients, as well as fixed fee service arrangements between drug manufacturers and PBMs.

Critics said the current “safe harbor” protection creates an incentive for PBMs and insurers to demand big rebates and then keep them as profits.

Under the current system, rebates are not typically passed through to insurers, but insurers say they use the extra cash to keep premiums low.

HHS said that the rule would apply to federal health programs and that Congress has more power to prohibit rebates in commercial insurance.

The HHS Office of the Actuary estimates that the rule will result in cumulative savings of $4 billion for state Medicaid programs over 10 years but have net federal Medicaid costs of $1.7 billion between 2020 and 2029.