Trump administration proposes altering rule on drug rebates

[July 20, 2018]  (Reuters) - The Trump administration has proposed a rule that would scale back protections currently in place that allow rebates between drug manufacturers and insurers and pharmacy benefits managers, according to the Office of Management and Budget (OMB) website.

Bloomberg first reported the existence of the proposed rule, which comes as the administration works to implement a wide-ranging plan to lower prescription medicine prices. The U.S. Department of Health and Human Services on Wednesday night sent the proposed rule to the OMB.

Details of the proposed rule have not yet been made public, but its title on the OMB site refers to removing the safe harbor protection for rebates from the anti-kickback law.

The move is the first concrete sign that the Trump administration has started to review the legal status of these rebates since Food and Drug Administration Commissioner Scott Gottlieb raised the idea early this year that they should not be exempted from anti-kickback law.

The anti-kickback law makes it illegal to pay an incentive for drugs or services that Medicare, Medicaid or other federal healthcare programs cover.

Shares of drug wholesalers such as AmerisourceBergen Corp <ABC.N> and McKesson Corp <MCK.N>, and pharmacy benefit managers, including CVS Health Corp <CVS.N> and Express Scripts <ESRX.O>, fell slightly on Thursday on the move.

The administration has placed blame on "middlemen" such as pharmacy benefits managers - which administer drug benefits for employers and health plans - and health insurers for driving up drug prices by demanding hefty rebates in exchange for the broadest access to patients. Health and Human Services Secretary Alex Azar and Gottlieb have questioned whether rebates provided by drug manufacturers should remain protected by federal law.

Health and Human Services and OMB did not immediately respond to requests for comment.

U.S. President Donald Trump made lowering prescription drug prices a top priority during his 2016 presidential campaign. In May, his administration unveiled a drug pricing blueprint that included broad proposals for lowering prices that largely spared pharmaceutical manufacturers and instead went after pharmacy benefits managers. Pharmaceutical stocks rose after the blueprint's release.

JP Morgan analyst Lisa Gill said Wall Street overreacted to the proposal submitted on Wednesday because rebates are only one component of pharmacy benefits managers' profit streams.

"If there are any changes around rebates they can adjust other aspects of the pricing model to ensure they are being paid fairly for the value they are adding," Gill wrote.

(Reporting By Yasmeen Abutaleb; editing by Diane Craft)

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