White House drops proposal to eliminate drug rebates. Health stocks soar

Key Points
  • The Trump administration has withdrawn its proposal to eliminate rebates from government drug plans.
  • Curbing rebates was a key component of Trump's plan to lower prescription drug prices.
  • Pharmaceutical companies negotiate discounts, or rebates, with insurers.
President Donald Trump boards Air Force One to return to Washington from Morristown Municipal Airport in Morristown, New Jersey, July 7, 2019.
Jonathan Ernst | Reuters

The Trump administration has withdrawn its proposal to eliminate rebates from government drug plans, a key component of the president's blueprint to lower prescription drug prices, a White House spokesman confirmed.

"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 Thursday.

Shares of health insurers jumped on the news. Cigna soared 9% and UnitedHealth rose 6%, while CVS Health, which bought insurer Aetna last year, closed up 5% on the day.

The administration sought to ban discounts on prescription drugs that insurers negotiate with pharmaceutical companies, saying these "backdoor rebates" have led to a "perverse incentive" for drugmakers to set list prices on drugs artificially high. Instead, the rule would give pharmacy benefit managers a flat fee for including drugs on their plan and would allow discounts to be passed on to patients at the pharmacy counter.

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Health and Human Services Secretary Alex Azar touted the plan as a way to "bring real transparency to drug markets and deliver savings directly to patients when they walk into the pharmacy." However, the Congressional Budget Office found the rule would cost $177 billion through 2029.

Insurers opposed the proposal, saying it would not accomplish its goal of lowering prescription drug prices.

CVS in a statement said it is "pleased" with the administration's move and that "any solution should start with addressing drug prices."

Axios reported the news earlier.

Deere said the Trump administration is "encouraged by continuing bipartisan conversations about legislation" to lower prescription drug costs and the president "will consider using any and all tools" to ensure drug prices decline.

— CNBC's Bertha Coombs contributed to this report.