The Trump administration has withdrawn a key proposal to lower drug prices, which its top health official had touted seven months ago as the most effective way to curb medicine costs for consumers.
The drug rebate rule would have ended a widespread practice in which drugmakers give rebates to insurance middlemen in government programs such as Medicare. The idea was to channel that money to consumers instead.
The proposed rule was the second major Trump drug pricing effort to collapse this week after a federal judge blocked an administration rule that would have required drugmakers to disclose the list prices of their medicines in television ads. Together, they complicate the administration's efforts to lower prescription drug costs, potentially undermining one of Trump's main campaign promises as he seeks a second term.
The withdrawal of the plan is expected to put pressure on administration officials to pursue more populist proposals, from importing lower-cost drugs from other countries to basing the prices of some Medicare drugs on the lower prices paid by other countries—ideas favored by the president but reviled by the drug industry and many Republicans. It also demonstrates the internal conflicts within the administration on drug policy and the president's tendency to flip-flop—the plan was part of his drug pricing blueprint released with fanfare a year ago.
Health and Human Services Secretary Alex Azar, a former Eli Lilly and Co. exec, and top White House policy advisers had disagreed over the merits of the drug rebate rule, with Azar continuing to champion it and most White House policy officials arrayed against him over concerns it would cost nearly $180 billion over the next decade and could raise Medicare premiums.
Drug rebates, which Azar in January termed "a shadowy system of kickbacks," are essentially discounts off the list prices of drugs. Drugmakers pay them to pharmacy benefit managers, or directly to insurers, in exchange for a drug being included in a list—or formulary—of drugs covered by a given health plan. The benefit managers say those rebates are a small part of the discounts they negotiate to lower the costs of drugs to insurers, including Medicare. They contend the real problem is that manufactures set list prices too high.
In the end, administration and congressional budget analysts projected that if drugmakers no longer paid the rebates, they were likely to pocket most of the savings rather than pass them onto consumers. And without the middlemen negotiating drug discounts, Medicare would be on the hook for more of the costs, leading to increased insurance premiums and government spending, analysts said.
The decision to jettison the proposed rule was made at an Oval Office meeting this week, in which several advisers, including White House Domestic Policy Council Director Joe Grogan and Azar, discussed the pros and cons with Trump, according to a White House official and lobbyist briefed on the meeting.
Grogan argued that the rule would raise Medicare premiums right before the 2020 election, the sources said. Azar was the only one advocating for it. Trump himself made the decision to withdraw the plan, according to administration officials.
"There was pretty wide consensus and Russ Vought [acting director of the Office of Management and Budget] was chief among those that [said] it was a terrible idea," a senior administration official said. "The cost was exorbitant and it was perceived as a bailout to big pharma. . . . There was wide consensus with OMB leading on the charge on that."
On a call Thursday afternoon with reporters, another senior administration official said there was concern the rule's expense might compromise negotiations with Congress over legislation to lower drug costs. If lawmakers were concerned about how the rule could affect Medicare premiums, the official said, "it could have inserted new variables into a negotiation."
Azar echoed the White House's line of reasoning in a briefing with reporters. "At the end of the day, while we support the concept of getting rid of rebates . . . we're not going to put seniors at risk of their premiums going up," he said.
Still, he contended, "rebates' days are numbered . . . We have totally changed the debate on rebates."
The decision drew praise from pharmacy benefits managers – the middlemen who would have been most hurt by the proposal—and who had lobbied members of the Domestic Policy Council and top health officials to drop it.
"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," Pharmaceutical Care Management Association Chief Executive J.C. Scott said in a statement.
Drugmakers, however, called the decision "a blow to seniors."
"Of all the policies proposed in Washington right now, this was the only proposal that would provide immediate savings at the pharmacy counter," said Holly Campbell, a spokeswoman for PhRMA.
White House spokesman Judd Deere said the White House hoped to collaborate with Congress on other approaches to lowering drug costs.
"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 in a statement.
Azar and Grogan met with Senate Republicans earlier this week to discuss a bipartisan drug pricing proposal, expected to be unveiled in the coming weeks, which includes more than a dozen provisions, including capping out-of-pocket costs in Medicare drug benefits and changes to Medicaid, according to a Senate aide.
Azar told reporters Thursday that he is working with the White House on other ideas to lower drug prices, including finding ways to import lower-cost drugs from other countries.
Trump has embraced a proposal by Florida Gov. Ron DeSantis, R, for instance, to import lower-priced drugs from Canada. Azar had originally expressed concerns such an approach could allow potentially unsafe counterfeit drugs into the country.
On Thursday, Azar reiterated his previous assertion that importing drugs from other countries makes sense only if it can be guaranteed that the U.S. drug supply is safe and that such a policy would save money for consumers. But he said that recent changes in who is distributing drugs "could open the door" to meeting those criteria.
Asked whether he was disappointed in the president's decision on rebates, Azar said he was not.
In response to another question about his tenure at HHS, he said he would be "delighted to stay in this role as long as the president is in office and the president wishes me to be here. I love this job."