Trump’s Drug Rebate Ban Would Cost Medicare $170 Billion: CBO
Health Care

Trump’s Drug Rebate Ban Would Cost Medicare $170 Billion: CBO

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The Trump administration’s proposal to crack down on rebates paid by drug manufacturers to middlemen probably won’t lower prices for consumers, a Congressional Budget Office report said Thursday. At the same time, the plan would increase Medicare and Medicaid spending by billions of dollars while providing a nice boost to pharmaceutical firms’ bottom lines, CBO said.

The proposal: In January, the U.S. Department of Health and Human Services said it wants to curtail drug-price rebates paid to pharmacy-benefit managers, or PBMs. Drug companies use the rebates in part to achieve favorable placement on lists of medicines covered by insurance plans and administered by the PBMs. But those rebates play an important role in driving drug prices ever higher, with HHS estimating that they account for as much as 30 percent of a prescription drug’s retail price.

The desired effect: The Trump administration said that eliminating the rebates (by excluding them from “safe harbor” protections under the Anti-Kickback Statute) would reduce drug prices. HHS also proposed to allow rebates to be paid directly to consumers, further lowering effective prices.

The likely result: CBO said that drug manufacturers were unlikely to lower prices following a rebate ban and would instead find a new way to keep the payment system operating: “CBO expects that rather than lowering list prices, manufacturers would offer the renegotiated discounts in the form of chargebacks,” the report said, with those new payments equal to about 85% of the rebates currently being paid.  

Drugmakers would keep the other 15% of the rebates for themselves, CBO said, based on consultations with stakeholders and other experts.

Federal health care spending would be affected, CBO said, with Medicare costs rising by $170 billion between 2020 and 2029. Currently, health plans may use the drug rebates to reduce premiums, and those premiums would rise in their absence. “Because the government subsidizes 74.5 percent of the basic beneficiary premium, higher premiums would lead to larger federal subsidies, thus increasing federal spending,” CBO said.  

Medicaid spending would also rise, by about $7 billion over 10 years.

The bottom line: The rule is scheduled to take effect in 2020. According to the federal government’s budget analysts, the Trump administration’s proposal to eliminate drug rebates would fail to reduce drug prices and would increase Medicare and Medicaid spending by about $177 billion over 10 years.