Administration Delays Implementation of Rebate Rule; Congress Is Likely to Repeal It

The Biden administration will suspend implementation until 2023 of the so-called “rebate rule,” a Trump administration regulation that would have revamped the Medicare prescription drug rebate system. D.C. insiders expect Congress to eliminate the rule before then for budgetary reasons, but say that drug pricing and PBM regulation will be high on the health care agenda after policymakers address the latest issues arising from the COVID-19 pandemic.

The suspension comes in response to a suit against the rule by a PBM trade group, the Pharmaceutical Care Management Association (PCMA), which sought to overturn the rebate rule on the grounds of its rushed implementation. A court order brokered in the U.S. District Court for the District of Columbia stipulates that all provisions of the final rule that were scheduled to take effect on Jan. 1, 2022, are now postponed until Jan. 1, 2023, and it directs the parties involved in the lawsuit to issue a joint status report “identifying whether and how this case should proceed by not later than April 1, 2021.”

According to attorney Rachel Sachs, an associate law professor at Washington University in St. Louis and an expert on drug price regulation, PCMA’s strongest legal position against the rebate rule stems from the rushed process that created it. The Administrative Procedure Act requires a 60-day comment period between the proposal and finalization of a new regulation, and HHS didn’t follow the usual process with the rebate rule.

“The issue is that they initially introduced drafts of them, and then they sat on them for years, or even tried to say that they weren’t going forward with them — only to finalize them after the election, in the case of the rebate rule. That’s one of the reasons [PCMA] was able to challenge it,” explains Sachs. The original rebate rule was pulled in July 2019 amid concerns that it would increase federal spending and Medicare beneficiary premiums, as both the Congressional Budget Office (CBO) and CMS’s Office of the Actuary predicted those outcomes.

Rule Faces Numerous Legal Hurdles

Sachs adds that there are other problems with the rule that make it vulnerable to legal challenges from the PBM industry.

“There were several other substantive allegations, including the scope of the OIG [HHS Office of Inspector General] to review these questions,” Sachs explains, noting that the rule was promulgated by the OIG instead of the regular CMS rulemaking process. She adds that, in public comments on the rebate rule, former HHS Secretary Alex Azar claimed that it wouldn’t increase federal spending despite the CBO and CMS actuarial reports saying the opposite. Sachs says that contradiction further exposes the regulation to legal risk.

Payers and PBMs both applauded the court order and argued the Biden administration should do away with the rebate rule altogether.

David Root, vice president for public affairs for PBM Prime Therapeutics, which is owned by Blue Cross and Blue Shield affiliates, tells AIS Health via email that “we firmly believe the rule as written will significantly increase beneficiary premiums and government costs, and it will not achieve lower prices for the vast majority of consumers. Should the rule move forward without significant changes, we will continue to advocate for a full repeal of the rule.”

AHIP Wants Full Withdrawal

Matt Eyles, president and CEO of America’s Health Insurance Plans (AHIP), said in a Feb. 1 statement that “we strongly support the stipulation between the Biden Administration and the Pharmaceutical Care Management Association (PCMA) delaying the effective date of the ‘rebate rule’ until January 2023.” The “misguided proposal” will increase premiums for seniors and people with disabilities, Eyles said, adding that it “does nothing to lower prescription drug prices.”

“While we continue to urge full withdrawal of the prior Administration’s rule, this delay will allow Medicare Part D plans in 2022 to provide the benefits and premiums seniors have come to expect,” Eyles concluded.

Ge Bai, Ph.D., an associate professor at Johns Hopkins University’s Carey Business School and Bloomberg School of Public Health, says that “there are two reasons the rule was established: One was to reduce patient cost sharing at the pharmacy counter. Second would be to optimize PBMs’ product selection, so that they would put more cost-effective drugs in their formulary.”

Bai observes that PBMs don’t always put the drug that would be cheapest to consumers into a formulary. Instead, PBMs may choose a drug whose manufacturer offers the PBM a more generous rebate than the competition, even if it’s a pricier brand-name drug.

The bottom line, Bai says, is that “there’s a trade-off between premiums and patient cost sharing. Rebates that come back [to insurers and PBMs] will reduce premiums, but patients who actually use the drug won’t see savings at the pharmacy counter from the rebates.…You can’t have both.”

In any case, politics could mean the legality and impact of the rule may be a moot point. Dan Mendelson, founder of Avalere Health, tells AIS Health that the balance of power in Congress creates a strong incentive for the rule to be repealed by legislators.

“Because the Senate is so tight, one of the only ways to get things through is this budget reconciliation process,” Mendelson explains. “Budget reconciliation gives you a world where you can pass with 50 votes in the Senate — but it comes along with liability that new programs have to be fully offset; you have to have cost reductions that you pass at the same time. And so, as a result, there’s an all-out scramble for cost reductions that could be layered into a reconciliation bill to make the whole thing work.”

Mendelson adds that repeal of the rebate rule is a tantalizing opportunity for lawmakers under those circumstances. Since the rebate rule would be costly but hasn’t actually been implemented, eliminating it would create a massive savings on paper without the political cost that would come from cutting a real program of similar scale.

“It’s a cute trick if you can repeal a regulation and score a savings even though nothing happened. It is truly a budget gimmick of the highest order,” Mendelson says.

However, Mendelson says that the drug pricing issue won’t end with the repeal of the rebate rule. He expects this Congress to take up the matter at some point with support from the administration. “The problem with using pharmaceutical policy as a cost offset is what you really want to do is reduce the out-of-pocket spend for consumers,” Mendelson observes. “And that’s frankly what people want, and it is ultimately the only solution to this. You don’t want to take those savings and then just shovel them back into Medicare cost offsets. You want to solve the problem.”

He says that conversation could include changes to Medicare’s and Medicaid’s drug pricing models.

“Trump and Biden have similar positions on drug pricing policies, particularly as it relates to differences between drug prices in the U.S. compared to other countries,” Lance Grady, practice leader for market access at Avalere Health, tells AIS Health via email. “Specifically, President Biden’s platform includes allowing for drug importation from other countries, allowing Medicare to negotiate drug prices, and establishing a drug price review board for new high-cost drugs that would recommend a price based on the drug’s value and the average price paid in other countries. Because Medicare negotiation/international reference pricing is unlikely to get enough votes to pass in Congress, the Biden Administration may also look to [the Center for Medicare and Medicaid Innovation] to implement Medicare negotiation via international reference pricing and/or a drug price review board.”

Indeed, the Trump administration tried a similar approach through executive action, finalizing a rule in November 2020 that would have tied Medicare Part B drug prices to the cost of pharmaceuticals in other countries. Two federal judges have issued injunctions to block implementation of that rule, which was meant to be phased in as a model starting on Jan. 1, 2021.

In a similar way, Bai says that the rebate rule was ultimately done in by its association with Trump — even though many Democrats dislike the PBM rebate model. “I think that, politically, the new administration probably won’t want to be perceived as continuing these policies,” Bai explains. “The rebate rule has a very Trump flavor.”

Read the court order at https://bit.ly/3rrcy4r. Contact Bai at gbai@jhu.edu, Grady and Mendelson via Liz Moore at lmoore@avalere.com and Sachs at rsachs@wustl.edu.

This story was reprinted from AIS Health’s weekly publication Health Plan Weekly. For more information, visit https://aishealth.com/product/health-plan-weekly.

Peter Johnson

Peter has been a reporter for nearly a decade. Before joining AIS Health, Peter covered a wide variety of topics in his hometown of Seattle, where he continues to live. Peter’s work has appeared in publications including The Atlantic and The Stranger. Peter attended Colby College.

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