(Adds analyst, recasts)
July 11 (Reuters) - The Trump administration has withdrawn a rule that it had said would lower drug prices by ending the system of prescription drug after-market discounts called rebates that drugmakers pay to pharmacy benefit managers.
Shares of Cigna Corp, the largest U.S. pharmacy benefit manager, were up 13.5 percent in early Thursday trading.
The move is a setback for the administration, which first launched the idea of eliminating the "safe harbor" protections for the payments last summer as part of a drug pricing "blueprint" aimed at bringing down costs, an important election issue for President Donald Trump.
The rule would have forced healthcare companies like Cigna and CVS Corp to forgo these discounts or pass them onto Medicare patients through their health insurance plans and drug plans. The companies said that would force them to raise monthly premiums.
The rule, which was in the process of being finalized and would have gone into place next year, was estimated by the nonpartisan Congressional Budget Office to cost the government $177 billion over the next 10 years. The CBO also said that it was likely that drugmakers would not cut their prices because of the rule.
Shares of UnitedHealth Group Inc and CVS Health Corp were also up as were those of drug distributors like McKesson Corp and pharmacy Walgreens Boots Alliance Inc .
"Political momentum was building against the 2020 implementation of the CMS proposal to eliminate pharmaceutical rebates in government programs due to the perceived unintended windfall profits that might have accrued to pharmaceutical manufacturers," JP Morgan analyst Gary Taylor wrote in a research note.
Politico https://www.politico.com/story/2019/07/11/white-house-drug-rebate-rule-1405884 reported the news on Thursday and the White House confirmed the decision to Reuters.
In recent weeks, Politico and other publications reported that the White House and Health and Human Services Secretary Alex Azar disagreed over the rule.
"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.
"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 said. (Reporting by Caroline Humer in New York and Ankur Banerjee in Bengaluru Editing by Saumyadeb Chakrabarty and Steve Orlofsky)