Senate Bill Would End Drug Rebates in Employer Plans | Mercer

Senate Bill Would End Drug Rebates in Employer Plans

Our Thinking / Healthcare / Washington Weekly

Senate Bill Would End Drug Rebates in Employer Plans
Calendar14 March 2019

New Senate legislation would outlaw rebates or price reductions negotiated between drug makers and pharmacy benefit managers (PBMs) in transactions with private-sector health care plans — including insured and self-insured employer plans — unless directly passed through to consumers.

The Drug Price Transparency Act (S 657) from Sen. Mike Braun, R-IN, would put the onus on group health plans and insurers to ensure that rebates between PBMs and drug makers are passed along to participants and beneficiaries at the point of sale. Any remuneration between a drug maker and a PBM would have to take the form of a flat fee for PBM services and meet transparency standards that the US Department of Health and Human Services (HHS) would develop.

Braun’s bill comes on the heels of a high-profile Senate hearing where drug company CEOs criticized the current rebate system, and a proposed HHS rule that would effectively ban drug maker rebates to health plans and PBMs, with violations subject to fines under a federal anti-kickback statute.

The proposed HHS regulation would apply only to Medicare Part D and Medicaid managed care plans. While legal challenges could delay or block implementation of any final rule implementing the proposal, HHS has asked for other ideas to lower drug prices. In a July 2018 comment letter to HHS, Mercer called for reforming the rebate system in both government and private plans. Those reforms, along with greater price transparency and rebate information for employers, are necessary to achieve a value-based model, Mercer said.

The Senate Finance Committee is exploring drug-rebate and price-transparency reforms that would apply to public programs under its jurisdiction. During the committee’s Feb. 26 hearing, some drug company leaders signaled that they would be willing to lower prices if rebates were also banned in the private sector.

Braun’s legislation, which has been referred to the Senate Health, Education, Labor and Pensions (HELP) Committee, would fall short of a complete ban. However, Braun and other HELP committee members — including Chairman Lamar Alexander, R-TN — are considering other measures to address rebates in the private sector. A recent Mercer comment letter to Sen. Alexander suggests several drug-pricing reforms that could help control costs.

Congress faces major challenges in advancing bills to address rebates. While the Senate could pass legislation, Democrats in charge of the House will probably demand additional reforms, such as letting Medicare negotiate drug prices and allowing drug importation. Those reforms are nonstarters with Senate Republicans. In addition, powerful industry interests are expected to line up against any big deal.

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