Trump Administration Withdraws Proposed Rule to Block Rebates

The Trump administration has withdrawn its proposal to block rebates and discounts given by drug makers to pharmacy benefit managers (PBMs), Part D plans, and Medicaid managed care organizations.

The rule would have excluded rebates from safe harbor protections that currently shelter drug makers’ rebates from penalties under the federal Anti-Kickback Statute and would have formed new safe harbor protections for discounts offered directly to patients, as well as fixed-fee service arrangements between drug makers and PBMs.

HHS previously said that the rule would counteract incentives behind higher list prices; currently, when a list price rises, patients who pay a percentage or all of the list price for a drug see their out-of-pocket expenses increase while PBMs reap financial rewards.

According to a report by Politico, the administration has now decided to withdraw the proposed rule, first put forward in February 2019 and championed by HHS Secretary Alex Azar, who has called the use of rebates in the United States “an absolutely silly system.” The rule reportedly faced dissent from domestic policy chief Joe Grogan and others who believed that it would be too costly to implement.

It had been expected that the rule would shake up the marketplace for biosimilars; while just 7 biosimilars have entered the US market, they have seen low levels of uptake. In at least 1 of those cases, rebates have been blamed for sluggish adoption. In 2017, Pfizer, maker of a biosimilar infliximab product (Inflectra), filed suit against Johnson & Johnson (J&J), maker of the reference infliximab (Remicade), for using the so-called “rebate trap” to block biosimilar competition for its high-selling product.

According to Pfizer’s suit, J&J threatened to withhold rebates (which often grow larger as performance metrics such as market share or volume rise, or which may be bundled together with rebates for other products) from insurers unless they agreed to exclude biosimilars from their formularies.

The now-withdrawn rule could have undercut the incentive for PBMs to favor drugs with higher rebates over drugs, like biosimilars, that have lower costs, and proponents say that it could have allowed for increased biosimilar uptake if drug makers made the decision to compete on price.