Proposed Rule

America's pharmacy benefit managers (PBMs) work every day to ensure that more than 266 million Americans have affordable access to prescription drugs. These companies are the only entities in the drug supply chain whose mission is to lower cost of prescription drugs.

The Administration is proposing to eliminate the use of a key tool that PBMs use to drive savings for consumers and patients - rebates from drug manufacturers to PBMs in the Medicare Part D and Medicaid managed care programs.

Unfortunately, the proposal advanced by the Administration will not lead to lower prices or consumer savings, but instead may undermine the Medicare Part D program at a significant cost to taxpayers and risks substantially increasing premiums for Medicare beneficiaries.

PBMs negotiate rebates with drug manufacturers to keep prescription drugs accessible and affordable for consumers, patients and plan sponsors.  The savings that PBMs negotiate from drug manufacturers are passed on to plan sponsors to lower enrollee premiums, reduce the amount consumers pay at the pharmacy counter, and enhance benefits.

What happens if the proposal is enacted?

  • The Administration is not sure what the implications of the rule are and had to get six actuarial analyses done in order to find one that supports U.S. Department of Health and Human Services' (HHS) contention that discounts will be higher than rebates.

  • Medicare Part D premiums increase up to 25%.
    All Medicare Part D beneficiaries will pay more in premiums. The Administration estimates that premiums could go up by 25% -- the largest average premium increase in the history of Part D.

  • Taxpayers costs will increase $177 billion over the next ten years (according to Congressional Budget Office).  This would be one of the costliest regulations ever proposed in America.

  • Medicare Part D could be destabilized.
    Because Part D enrollment is voluntary, a 25 percent base premium increase could destabilize the successful and popular program if higher premiums cause healthier beneficiaries to drop coverage or never enroll at all.

  • The rule does nothing to address prescription drug list prices.
    The fact that both PhRMA "applauds" and BIO "strongly supports" the rule should reinforce that the manufacturers are the big winners in this proposal. Drug manufacturers stand to get as much as a $40 billion windfall under the proposal. It does nothing to lower prescription drug list prices, which drug manufacturers alone have the power to set. Even the Administration concedes that it "intends" for drug manufacturers to reduce their prices but is not certain of the outcome.

  • Just because the Administration "intends" for the rule to produce a certain result does not mean that it will.
    Manufacturers already could lower their prescription drug list prices and don't, and manufacturers continue to raise prices on drugs used in Medicare Part B, a program which does not involve PBM-negotiated rebates. If manufacturers do not lower their list prices (again, there is no requirement in the rule that they do so), HHS readily admits that the rule will result in large increases in both Federal subsidies and beneficiary premiums, with the only benefit accruing to manufacturer profits.

  • Nothing in the rule addresses the fact that the manufacturers will likely cite antitrust law as the reason they cannot give up-front discounts.
    Case law has left it such that there are no viable alternatives to rebates. We applaud the administration's efforts to reduce prescription drug costs, but removing PBM-negotiated rebates will hurt more than it helps.

    U.S. Department of Health and Human Services (HHS) is moving forward with this proposal on an unprecedented and unrealistic timeline. It should not be finalized. There are better ways to reduce the cost of prescription drugs for our seniors, those with disabilities, and taxpayers.