White House pulls industry's favored rebate proposal

When the Trump administration rolled out its proposal to dramatically reshape drug rebates last year, the pharma industry cheered. Analysts figured the move would spread to private plans, too.

But that rejoicing was premature. In a major setback for drugmakers, the White House is backing off—and payers are likely to cheer instead.

Early Thursday, reports surfaced that President Donald Trump was killing the plan. Spokesman Judd Deere told numerous publications that "based on careful analysis and thorough consideration, the president has decided to withdraw the rebate rule." 

"The Trump administration is encouraged by continuing bipartisan conversations about legislation to reduce outrageous drug costs imposed on the American people, and President Trump will consider using any and all tools to ensure that prescription drug costs will continue to decline," he added, as quoted by Politico.

Despite enthusiasm from pharma companies, the idea faced intense pusback from pharmacy benefit managers, who said it let drugmakers off the hook on lowering their own prices. Pharma companies argued the plan would help patients by cutting out-of-pocket costs at the pharmacy counter.

The Congressional Budget Office’s findings may have been what sank the idea. In May, the agency said revamping rebates would boost federal spending by nearly $180 billion over 10 years and lead to higher premiums for seniors.

That finding troubled domestic policy chief Joe Grogan, Politico reports, putting him at odds with Department of Health and Human Services (HHS) Secretary Alex Azar. Azar has frequently touted eliminating drug rebates to lower costs. After HHS rolled out the policy, he called on Congress to take the idea to commercial plans. 

Industry trade group PhRMA said in a Thursday statement the decision "is a blow to seniors who could have paid less for their medicines at the pharmacy counter."

"Of all the policies proposed in Washington right now, this was the only proposal that would provide immediate savings at the pharmacy counter, instead of only saving the government or insurance companies money," the group said.

PCMA, the group that represents pharmacy benefit managers, responded with a statement that "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."

In a Thursday note to clients, Wells Fargo analyst David Maris pointed out that drug stocks were down, and wrote that the market is "correctly interpreting this as a potential risk" for pharma companies. He said the "absence of a rebating fix does not mean there will not be a plan to address drug prices" and that future proposals could more directly target pharma's prices, rather than supply chain dynamics.

Thursday’s development shows just how tricky it is to implement drug-pricing reforms in Washington, even when an idea has broad support from the pharma industry. The news comes right after a federal judge nixed the Trump administration’s rule requiring drug prices in TV ads and within months of former FDA chief Scott Gottlieb’s departure. Gottlieb had been working to address high prices at the FDA and joined Pfizer’s board of directors quickly after leaving government.