Trump Administration Withdraws Proposed Rule to Block Rebates

President Trump									Win McNamee  Getty Images

The White House on Thursday yanked its own regulation to ease the financial bite of costly medications for those on Medicare by letting them receive rebates that drugmakers now pay to insurers and middlemen.

The iShares U.S. Healthcare Providers ETF (NYSEArca: IHF) jumped 3.7% on Thursday, breaking back above its 200-day simple moving average.

Rebates had become a popular target of criticism in Washington after drug companies lobbied aggressively to cast them as the reason for high prices.

The move is a setback for the administration, which first launched the idea of eliminating the "safe harbor" protections for the payments last summer as part of a drug pricing "blueprint" aimed at bringing down costs, an important election issue for President Donald Trump.

Health and Human Services Secretary Alex Azar 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 almost $180 billion over the next decade and could raise Medicare premiums.

Shares of health insurers such as UnitedHealth Group Inc, Cigna Corp and drug distributors like McKesson Corp rose after the report.

White House spokesman Judd Deere said the proposal to create the rebate program was withdrawn "based on careful analysis and thorough consideration".

A senior Trump administration official, who spoke on background during a separate briefing Thursday, echoed those sentiments, saying their primary focus is to support a legislative deal to lower drug prices and that there was concern this change would disrupt those efforts. Drugmakers preferred the consumer rebate approach to other ideas that lawmakers are considering. "We believe that the key to lowering drug costs is to enact policies that encourage greater competition", JC Scott, chief executive of industry lobbyist Pharmaceutical Care Management Association, said in a statement.

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"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. That's another way to achieve a similar goal as the rebate plan.

HHS previously said that the rule would counteract incentives behind higher list prices; now, when a list price rises, patients who pay a percentage or all of the list price for a drug see their out-of-pocket expenses increase while PBMs reap financial rewards.

"CBO is wrong in that it fails to account for the lower cost of prescription drugs that consumers will have access to if this rule is implemented", he said in a statement to The Journal Gazette.

But AP reported that Jim Greenwood, head of the Biotechnology Innovation Organization said in a statement, "The administration has abandoned one of the only policy solutions that would have truly lowered what patients are forced to pay out of pocket for the medicines they need".

Drug rebates, which Azar in January termed "a shadowy system of kickbacks", are essentially discounts off the list prices of drugs.

They contend the real problem is that manufactures set list prices too high.

Budget projections showed the rule could cost the federal government roughly $177 billion in the next decade, and other policy experts anxious the rule would lead to higher premiums for Medicare beneficiaries.

Labor Department data indicate that changes may be afoot with drug prices. Meanwhile, insurers would raise premiums to compensate for the loss of rebates.

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