The Department of Health and Human Services on Friday agreed to push back the implementation of a controversial rebate rule until 2023. The regulation would effectively ban drug makers from providing rebates to pharmacy benefit managers and insurers — a radical change in the way many drugs are priced and paid for in Medicare and Medicaid. 

Instead, drug companies will be encouraged to pass the discounts directly to patients at the pharmacy counter. The Trump administration had backed down from issuing this rule in 2019 after it was found to raise costs for seniors and the federal government, but issued the final rule in November. 

The Pharmaceutical Care Management Association, which represents pharmacy benefit managers, sued the Trump administration to stop implementation of the rule. The group, along with America’s Health Insurance Plans, argue that it would benefit drug manufacturers. A federal judge last week put the case on hold pending a review by the Department of Health and Human Services.

Tyrone’s Commentary:

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For the record, I  worked for one of the big five drugmakers Eli Lilly & Co. and can tell you these people weren’t sitting around thinking of ways to take advantage of patients or payers. Sure prescription drugs can be very expensive but they’re not as costly as the hospitalization that would be required if they didn’t exist. I’m likely in the minority on this issue, but sometimes critics of drugmakers act as if drugmakers created the diseases which cause harm to people and then manufactured the drugs to profit from their own creation. 

In fact, the opposite is often true; drugmakers develop drugs for which there may be no alternative other than surgery, chronic pain or death in order to prolong life. Having said that, this rebate rule would have been a financial windfall for drug manufacturers. The Congressional Budget Office or CBO said as much. 

Employers must recognize that, like it or not, the buck stops with them. Patients can hardly negotiate for themselves, but employers can be much more aggressive in getting PBMs and payers to have more skin in the drug-pricing game. Employers’ weak-kneed behavior is baffling — no other group has a greater stake in buying smarter. But employers have been reluctant actors in the health care system, relying on third-parties who may not have their best interests in mind. Some companies, like Honeywell and Caterpillar, have taken tough steps to control costs, with no loss in employee satisfaction. 

PBMs should not be generating a single penny of revenue for themselves from rebates or any manufacturer revenue. All negotiated cost-savings should be passed fully on to third-party payers like self-funded employers. When this happens getting to lowest net cost is within reach. One benefit is less cost-shifting to employees. I don’t expect employers to start writing drug-coverage policies and doing their own contracting. But, as seasoned buyers, they know how to negotiate with suppliers, such as insurers and PBMs — and they should not be afraid to do it.