Pharma CEOs enthuse about Trump's plan to shake up drug rebates

Sweep out drug rebates for patient discounts instead? Big Pharma CEOs are all over it.

A week after the Trump administration proposed ending drug rebates in federal health programs—and then urged Congress to extend that plan to commercial insurance—supply chain players are hitting back. The pharmacy benefit manager (PBM) industry has even launched an ad campaign.

But drugmakers are a different story. Eli Lilly CEO David Ricks said on Wednesday that the proposal could "be a win for patients, lowering their out-of-pocket costs at the pharmacy counter," and inspire pharma to do more to demonstrate the value of their products.

Plus, nixing rebates would "remove an artificial barrier to competition, creating space for innovation that addresses unmet needs for patients," Ricks said during the company's fourth-quarter earnings call.

Novartis CEO Vas Narasimhan told Reuters his company pays almost half of its gross U.S. revenues in rebates. He praised the idea to switch safe harbor protections from rebates to discounts for patients, saying the HHS proposal could "correct a distortion in the marketplace." 

Those two executives joined Novo Nordisk CEO Lars Fruergaard Jørgensen, who quickly praised HHS' plan in a Bloomberg interview last week. The Novo helmsman said the current rebate system is "problematic." Novo, along with insulin players Sanofi and Lilly, have paid growing rebates to middlemen in recent years; Novo paid a staggering 68% off its average U.S. list prices last year, the CEO said.

The Trump administration rolled out its proposal to scrap rules that exempt drug rebates from federal kickbacks laws a week ago. The "safe harbor" protections would instead apply to discounts for patients, and PBMs could charge fees for their services rather than keeping a percentage of rebates.

The current system of behind-the-scenes rebating has helped drive up list prices, administration officials have said, and the proposal could put a check on that trend. HHS' plan only suggests changes to Medicare Part D and Medicaid, but HHS Secretary Alex Azar quickly called on Congress to extend the idea into the commercial drug market.

While pharma CEOs talk up the idea, PBMs aren't in favor. CVS said last week that "while PBMs have become a convenient target in the fight against skyrocketing drug costs, in reality they serve as a last line of defense for the consumer."

The association that represents PBMs, the Pharmacy Care Management Association, said it's concerned 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." In response to the criticism, the industry launched a campaign showing how they fight high drug prices.

House of Representatives Speaker Nancy Pelosi also criticized the idea, saying it could increase premiums and boost total out-of-pocket costs for Medicare beneficiaries.  

"Under the Trump Administration’s proposal, Big Pharma could see even bigger profits and even less restraint on what they charge seniors," she said in a statement. 

To be sure, the conversation is just getting started. Five Big Pharma CEOs, plus a top executive at Johnson & Johnson, have accepted an invitation to testify at a Senate drug pricing hearing later this month, where rebates are likely to be a topic of discussion. 

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