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Trump administration pressures Congress to lower Medicare drug prices by ending industry's 'backdoor deals'

Key Points
  • The Trump administration calls on Congress to pass its new proposals that would ban certain "backdoor" rebates drug companies pay to middlemen in Medicare.
  • Democrats criticized the proposal, warning it could force insurers to raise premiums and the total out-of-pocket cost for Medicare beneficiaries.
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The Trump administration on Friday called on Congress to pass its proposed ban on "backdoor deals" that pharmaceutical companies cut with middlemen who get preferred status for their drugs in Medicare's prescription drug plans.

The proposal, unveiled Thursday, would pass an estimated $29 billion in rebates paid to so-called pharmacy benefits managers to consumers. Drug manufacturers pay PBMs the rebates for getting their drugs covered by Medicare's Part D prescription plan. Instead, PBMs would get a flat fee for including drugs on their plans. The rule would also create a new so-called safe harbor for drug discounts to be passed on to patients at the pharmacy counter.

Health and Human Services Secretary Alex Azar also urged Congress to extend the rule to employer-sponsored and other private insurance plans.

"Today's rebate system is set up in the shadows, to serve entrenched interests: drug companies who set these prices so high, and the pharmacy benefit managers who receive billions of dollars in rebates without patients ever knowing where the money goes," Azar said in a statement. "Congress has an opportunity to follow through on their calls for transparency, too, by passing our proposal into law immediately and extending it into the commercial drug market."

Azar, who is scheduled to deliver the remarks at the Bipartisan Policy Center in Washington on Friday, said the Trump administration plans to end "the era of backdoor deals in the drug industry."

Futures prices for shares of the parent companies of the nation's largest PBMs plunged. The nation's four largest PBMs are now all integrated with health insurance firms, following the recent completion of CVS Health's merger with Aetna and Cigna's acquisition of Express Scripts. UnitedHealth Group owns the OptumRX PBM and Anthem will be launching its own unit IngenioRx in the second quarter.

H/O: CVS and Cigna stock charts

(Chart showing after-hours trading action Thursday)

Cigna's shares were down 5 percent in premarket trading Friday while CVS and UnitedHealth were down 2.6 percent and 1.6 percent, respectively.

The Pharmaceutical Research and Manufacturers of America, or PhRMA, the industry's main trade group, applauded the administration's proposals. The health insurance lobby blasted the proposal, saying the administration "should go back to the drawing board" and take aim directly at high prices set by drugmakers.

Democrats take aim at Big Pharma

House Speaker Nancy Pelosi criticized the plan, warning the new rules could force insurers to raise premiums and the total out-of-pocket cost for Medicare beneficiaries.

Democrats have vowed to lower prescription drug costs as well but have focused on the pharmaceutical industry, which sells their drugs at higher prices in the U.S. than abroad. Spending on prescription drugs in the U.S. increased to $333.4 billion in 2017, according to the latest data from the Centers for Medicare and Medicaid Services.

Earlier this month, House Oversight Committee Chairman Elijah Cummings, D-Md., said he sent letters to 12 drugmakers seeking detailed information and documents about the companies' pricing practices. House Democrats also sent letters to Eli Lilly, Novo Nordisk and Sanofi on Wednesday requesting information on insulin prices and the obstacles to providing more affordable medication.

"For years, drug companies have been aggressively increasing prices on existing drugs and setting higher launch prices for new drugs while recording windfall profits," Cummings said in a statement. The committee's goal is to "determine why drug companies are increasing prices so dramatically, how drug companies are using the proceeds, and what steps can be taken to reduce prescription drug prices."

The proposal, if adopted, would take a while before consumers see a difference. The legislation would have to be debated and passed by both houses of Congress, and federal regulations implementing the rules would likely take months to write.

The proposed rules would apply only to Medicare and Medicaid plans. But senior administration officials say the new rules could ultimately influence the way private sector drug plans are negotiated.