The Trump administration’s top health official asked Congress on Friday to pass its new prescription drug discount plan and provide it to all patients, not just those covered by government programs like Medicare.

The plan would take now-hidden rebates among industry players like drug companies and insurers and channel them directly to consumers when they go to pay for their medications. 

Patients with high drug copays stand to benefit from the proposal, while people who take no prescription drugs, or who rely on generics mainly, would probably pay somewhat more, since premiums are expected to rise.

A day after unveiling the plan as a proposed regulation, Health and Human Services Secretary Alex Azar raised the stakes by calling on Congress to make it law and broaden it to include people covered by employer health insurance, not just Medicare and Medicaid beneficiaries.

“Congress has an opportunity to follow through on their calls for transparency … by passing our proposal into law immediately and extending it into the commercial drug market,” Azar said in a speech at the Bipartisan Policy Center think tank.

Trump under pressure

Ahead of next week’s State of the Union speech, President Donald Trump is under political pressure to show results for his promise to slash prescription drug costs. Data show that prices for brand-name drugs have continued to rise, though at a somewhat slower pace. Polls show consumers across the political spectrum want government action.

Democrats say the administration’s plan doesn’t go far enough because it still leaves drug companies free to set high list prices. They say drug pricing is like a black box, and it’s impossible to tell if prices reflect actual costs or if companies are charging what they think the market will bear.

House Speaker Nancy Pelosi, D-Calif., says she’s also worried that the plan would raise premiums. HHS acknowledges Medicare prescription premiums would go up $3 to $5 a month.

Proposal draws interest

Nonetheless, the administration’s proposal appears to be in the mix as Congress gears up to craft legislation addressing prescription drug costs. Friday evening, the Republican chairman of the Senate Health, Education, Labor and Pensions Committee, expressed his support. Rebates “ought to lower costs to patients, and this is a good first step towards that goal,” Sen. Lamar Alexander, R-Tenn., said in a statement.

The complex plan would work by doing away with an exemption from federal anti-kickback rules that currently allows drugmakers, insurers and middlemen called pharmacy benefit managers to negotiate rebates among themselves.

Drug companies pay rebates to make sure their medications are covered by insurance plans that are the intermediaries between them and patients. HHS says hidden rebates can amount to up to 30 percent of a drug’s list price. Insurers say they use the money from rebates to hold down premiums for all consumers.

Under the plan, the current anti-kickback exemption for industry rebates would be replaced with a new one for discounts offered directly to consumers. 

Azar said the idea would reshape the drug pricing system, shifting it away from hidden rebates to upfront discounts, creating pressure on drugmakers to keep prices down. The proposal was co-authored with the HHS inspector general’s office.

Potential consequences

Experts say it will take time to sort out all the potential consequences.

Peter Bach, director of the Center for Health Policy and Outcomes at New York’s Memorial Sloan Kettering Cancer Center, said the current system of rebates harms patients who take costly drugs with high copays. 

Think people with cancer, patients with intractable illnesses such as multiple sclerosis or rheumatoid arthritis, and those who take brand-name medicines with no generic competition. Patients’ cost sharing is often based on list prices, not the cost of the drug after rebates.

“Simply put, those on no medications at all will just see their premiums go up and see no savings because they don’t take any medicine,” said Bach. “Those on generics only may be essentially in this category (as well). 

“But those on expensive medications … they will see savings in total,” he added. More than half a million people filled at least $50,000 in prescriptions in 2014, according to an Express Scripts report. 

Insurers and pharmacy benefit managers like Express Scripts and CVS oppose the administration plan, saying it will undercut their ability to bargain with drugmakers for lower prices. 

Companies please with plan

Drugmakers have applauded the administration’s action. 

Consumers are worried about prices for brand-name drugs, particularly new medications that promise breakthrough results. Generics account for nearly 90 percent of prescriptions filled, but brand-name drugs account for more than 70 percent of the spending.

Azar contends that under the current system everybody but the patient benefits from high prices. A high list price makes room for bigger negotiated rebates for insurers and middlemen. And drugmakers then merely build that expectation into their prices.

Before joining the Trump administration, Azar was a top executive for drugmaker Eli Lilly. That led to criticism that he would be an industry pawn. But the drugmakers vehemently disagree with some of his other ideas, including an experiment using lower international drug prices to cut some Medicare costs.
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