HHS Proposal Targets Prescription Drug Rebates in Medicare


The proposed rule aims to encourage drug manufacturers to pass discounts directly to patients and improve transparency in the market.

Following recent drug pricing hearings on Capitol Hill, the Trump Administration proposed a rule targeting the prescription drug rebate system.

Lawmakers in Congress previously questioned the pricing practices of manufacturers and debated potential solutions to the high prices of some prescription medications, such as insulin. The latest proposed rule, which was announced by Health and Human Services (HHS) Secretary Alex Azar and Inspector General Daniel Levinson, targets backdoor rebates by encouraging manufacturers to pass discounts directly to patients.1

According to a fact sheet released by HHS, the proposal would “expressly exclude safe harbor protection under the Anti-Kickback Statute rebates on prescription drugs paid by manufacturers to pharmacy benefit managers (PBMs), Part D plans, and Medicaid managed care organizations.”2

Under the rule, prescription rebates may be passed directly to patients at the pharmacy counter, effectively creating a new safe harbor designed for price reductions at the point of sale. The proposed rule would pave the way for fixed fee service arrangements between drug manufacturers and PBMs, while bringing new transparency to the system.2

The Pharmaceutical Research and Manufacturers of American (PhRMA) praised the proposal and the administration’s efforts.

“This proposal would also help fix the misaligned incentives in the system that currently result in insurers and pharmacy benefit managers favoring medicines with high list prices,” PhRMA president and CEO Stephen J. Ubl, said in a statement. “These types of reforms will especially help patients with chronic diseases, such as diabetes patients who rely on insulin, who are often not benefitting from rebates and discounts.”3

The Pharmaceutical Care Management Association (PCMA) also issued a statement in response to the proposal. In the statement, PCMA president and CEO JC Scott supported the need to reduce high drug costs but said that PBMs are actually part of the solution.4

“We are concerned, however, that eliminating the long-standing safe harbor protection for drug manufacturer rebates to PBMs would increase drug costs and force Medicare beneficiaries to pay higher premiums and out-of-pocket expenses, unless there is a viable alternative for PBMs to negotiate on behalf of beneficiaries,” Scott said in the statement.4

In the current system, PBMs and Medicare plans typically negotiate rebates as a percentage of the list price. Because these rebates are typically paid after the sale of the drug to the patient, these payments are often not passed on to the patient. Another concern is that rebates incentivize manufacturers to continue increasing their list prices.

According to the fact sheet, “a system that favors list prices hurts patients, who often pay a percentage or all of the list price. It also drives up total spending for plans and payers.”2

HHS hopes that protecting upfront discounts would counteract incentives behind rising list prices and prevent manufacturers from citing rebate contracts as reasons to raise list prices.2

The proposed rule aligns with the goals expressed in the administration’s drug pricing blueprint, American Patients First.

“Every day, Americans—particularly our seniors–pay more than they need to for their prescription drugs because of a hidden system of kickbacks to middlemen,” Secretary Azar said in a released statement. “President Trump is proposing to end this era of backdoor deals in the drug industry, bringing real transparency to drug markets, and deliver savings directly to patients when they walk into the pharmacy.”1


  • Trump Administration Proposes to Lower Drug Costs by Targeting Backdoor Rebates and Encouraging Direct Discounts to Patients [news release]. HHS. https://www.hhs.gov/about/news/2019/01/31/trump-administration-proposes-to-lower-drug-costs-by-targeting-backdoor-rebates-and-encouraging-direct-discounts-to-patients.html. Accessed February 1, 2019.

  • HHS. Fact Sheet: Trump Administration Proposes to Lower Drug Costs by Targeting Backdoor Rebates and Encouraging Direct Discounts to Patients. 2019. https://www.hhs.gov/sites/default/files/20190131-fact-sheet.pdf.

  • PhRMA Statement on the Administration’s Proposed Rule to Reform the Rebate System [news release]. PhRMA. https://www.phrma.org/press-release/phrma-statement-on-the-administration-s-proposed-rule-to-reform-the-rebate-system. Accessed February 1, 2019.

  • PCMA Statement on the Administration’s Prescription Drug Rebate Proposed Rule [news release]. PCMA. https://www.pcmanet.org/pcma-statement-on-the-administrations-prescription-drug-rebate-proposed-rule/. Accessed February 1, 2019.

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