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 The abandoned proposal would have required health insurers to pass
billions of dollars in rebates they receive from drugmakers to
Medicare patients.
The decision represents a new setback to U.S. President Donald
Trump's efforts to deliver on a pledge to lower drug prices for
consumers before the November, 2020 election, when Republicans want
to capitalize on voter concern over high healthcare costs.
It allows companies like Cigna Corp and CVS Health Corp, which
negotiate rebates with drugmakers on behalf of the government's
Medicare program, to continue to benefit from those discounts.
Shares of Cigna rose 9%, CVS gained 5% and UnitedHealth Group Inc
was up 6%.
Pharmaceutical company shares fell, with Merck & Co off 4%,
Bristol-Myers Squibb Co down 3% and Pfizer Inc off 2%.
Baird analyst Eric Coldwell said Trump was likely refocusing his
reform efforts on the pharmaceutical companies themselves.
"There are still many headwinds for the supply chain, but... pharma
and biotech seem to have drawn the ire of the administration more
recently," said Coldwell, noting the industry's successful legal
challenge of a rule that would have required drugmakers to include
list prices in TV ads for their medicines.
"Shelving the rebate reform initiative, which pharma strongly
supported, feels like payback," Coldwell added.
The White House first floated the idea of ending the rebates last
year as part of a drug pricing "blueprint" aimed at bringing down
costs.
Several Democratic presidential hopefuls have also seized on drug
pricing as a key issue for the 2020 elections. Legislators,
including House Speaker Nancy Pelosi, are pushing for new laws to
allow the government to negotiate drug prices directly with
manufacturers.
A senior administration official, speaking on the condition of
anonymity, said the rule was too costly and could have hurt chances
for bipartisan legislation.
“The decision was made that... it was not prudent to go forward with
the rule right now, that it would be too disruptive, that the risk
was probably too high, and that it might upset a legislative deal,
which is our primary focus," he said.
The rebate rule would have forced companies like Cigna and CVS
either to forgo the discounts or pass them onto Medicare patients
enrolled in their health insurance plans and drug plans.
They argued that such a change would force them to raise monthly
premiums and had been pressing the administration to consider its
impact on Medicare, which includes people aged 65 and older and the
disabled, and instead focus on drugmakers.
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"Only drug manufacturers have the power to set drug prices. We
believe that the key to lowering drug costs is to enact policies
that encourage greater competition," JC Scott, chief executive of
industry lobbyist Pharmaceutical Care Management Association, said
in a statement.
PhRMA, the main pharmaceutical industry lobby group, disagreed,
saying in a statement that the move ended the only government
proposal that would have provided immediate savings at the pharmacy
counter for patients.
'UNINTENDED WINDFALL PROFITS' FOR DRUGMAKERS
The Trump administration is considering a proposed rule that aims to
bring some U.S. drug prices in the Medicare program in line with
lower prices paid by other countries.
U.S. Department of Health and Human Services Secretary Alex Azar
said on Thursday that Americans overpay for medicines, subsidizing
socialist European systems. Most European countries pay for
citizens' healthcare and directly negotiate drug prices.
Azar also said that he and Trump are working on allowing the
importation of cheaper drugs from other countries, a move Trump has
endorsed but which drugmakers have long opposed.
The rebate rule was estimated by the nonpartisan Congressional
Budget Office to cost the government $177 billion over the next 10
years. The CBO also said it was likely drugmakers would not cut
their prices because of the rule.
The government had hoped that by eliminating rebates of 15 percent
to 30 percent, or more, of a drug's listed price, the prices would
fall.
JP Morgan analyst Gary Taylor said in a note that political momentum
had been building against the rebate rule "due to the perceived
unintended windfall profits that might have accrued to
pharmaceutical manufacturers."
Politico first reported the planned scrapping of the rebate rule on
Thursday and the White House confirmed the decision to Reuters.
"Based on careful analysis and thorough consideration, the President
has decided to withdraw the rebate rule," White House spokesman Judd
Deere said in an emailed statement.
In recent weeks, Politico and other publications reported that the
White House and Azar had disagreed over the rule. Azar said on
Thursday that he planned to stay in his job as long as Trump wanted
him there.
(Reporting by Caroline Humer and Michael Erman in New York; Ankur
Banerjee, Tamara Mathias and Manojna Maddipatla in Bengaluru; and
Bryan Pietsch, Richard Cowan, Roberta Rampton and Jeff Mason in
Washington D.C.; Editing by Steve Orlofsky, Bill Berkrot and Dan
Grebler)
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