Benefit News

Trump Administration Proposes New Rules Aimed At Lowering Prescription Drug Prices

February 05, 2019

On January 31, 2019, the Department of Health and Human Services (HHS) released a proposed rule (seen here) which would amend the safe harbor regulation concerning rebates between drug manufacturers, insurers, and pharmacy benefits managers (PBMs) (third-party administrators of a prescription drug program). The proposal, which applies to federal healthcare programs, is designed to reduce out-of-pocket spending on prescription drugs by encouraging manufacturers to pass rebates directly on to patients at the point of sale (instead of the PBMs), hopefully resulting in lower prescription drug prices to consumers.

If implemented, the proposed rule will take effect on January 1, 2020.

Proposed Rule

Generally, a drug manufacturer pays a rebate, or discount, to a PBM, in order to gain favorable status for their drugs versus others on the list approved for reimbursement. Existing regulations contain a safe harbor that protects this practice from liability under Section 1128(b) of the Social Security Act, the federal anti-kickback statute.

This proposed rule would amend the current safe harbor regulation to eliminate the protection status for those discounts offered by prescription drug manufacturers to plan sponsors under Medicare Part D, Medicaid managed care organizations, or PBMs under contract with them. In addition, new safe harbors are being proposed to protect certain point-of-sale reductions on prescription drug products and PBM service fees.

What This Means For Employers

The proposed rule would apply directly to those purchasing prescription drugs under Medicare drug plans and Medicaid managed-care plans. Employers would not be affected by this current executive order for their traditional employer health plan. However, if implemented, this rule may incentivize Congress to take further action to halt the rise in pharmaceutical costs- including the potential to enact legislation to prohibit rebates in commercial insurance. Furthermore, private insurers typically use government programs as a gauge for taking action, and this may be no exception.

According to Kaiser Health News [1], there may be both winners and losers as a result of ending drug rebates. Possible winners include chronically ill patients who take lots of expensive medicine, as well as the drug manufacturers themselves (who will not be impacted by a drop in profits as a result). It is also hopeful that eliminating the rebates would slow down the steep rate of list-price increases that have been occurring lately. Losers potentially include PBMs and insurance companies, as well as patients without chronic conditions and high drug costs, who could see insurance costs increase without getting the benefits of lower out-of-pocket expense for purchased drugs.

PBMs play an important role in the administration of outpatient prescription drugs, and this proposed regulation does not mean they will be going away anytime soon. With the increase in rebates, especially over the past 3 years, many employers have enjoyed lower Rx costs in their health plans. The elimination of these rebates could provide some short term cost increases until the pricing of drugs are adjusted for a new non-rebate environment. This adjustment would take time.

For More Information

For additional information, please contact your Burnham Benefits Consultant or Burnham Benefits at 949-833-2983 or inquiries@burnhambenefits.com.


Burnham Benefits does not engage in the practice of law and this publication should not be construed as the providing of legal advice or a legal opinion of any kind. The consulting advice we provide is intended solely to assist in assessing its compliance with the Patient Protection and Affordable Care Act and other applicable federal and state law requirements, and is based on Burnham Benefit’s interpretation of federal guidance in effect as of the date of this publication. To the best of our knowledge, the information provided herein, and assumptions relied on, are reasonable and accurate as of the date of this publication. Furthermore, to ensure compliance with IRS Circular 230, any tax advice contained in this publication is not intended to be used, and cannot be used, for purposes of (i) avoiding penalties imposed under the United States Internal Revenue Code or (ii) promoting, marketing or recommending to another person any tax-related matter.

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