PBMs File Complaint Against Unwise HHS Rebate Rule

On January 12, 2021, the Pharmaceutical Care Management Association (PCMA), which represents pharmaceutical benefit managers (PBMs), filed a complaint in the U.S. District Court for the District of Columbia to invalidate a Department of Health and Human Services (HHS) Medicare Part D rebate rule that was finalized in November 2020.  The PCMA is arguing the rulemaking process disregarded administrative procedures, and the rule would eliminate rebates that are used to negotiate drug prices, cause Part D premiums to rise, violate Medicare law, and cause harm.  PCMA is asking the court to set aside the rebate rule and declare that the Medicare law protects rebates.

PBMs negotiate pharmaceutical prices and administer prescription drug plans for Medicare Part D beneficiaries, as well as millions of other Americans through many different sponsors, like health insurers, employers, and union plans.

Citizens Against Government Waste (CAGW) expressed its concerns and opposition to this final rule in a November 24 WasteWatcher blog.  At that time, CAGW expected the PBMs would seek legal recourse.

CAGW has been concerned about the development of this rule since January 2018.  At that time, the Centers for Medicare and Medicaid Services (CMS) asked for information on whether Part D sponsors, like PBMs, should provide a certain amount of a manufacturer’s rebate at the point of sale.  CAGW stated in a comment to CMS that we considered that policy would both be a price control and interfere with the private negotiations that occur in Medicare Part D.  The rule would be a violation of the Medicare Prescription Drug Improvement and Modernization Act, Section 1860D-11(i), or the non-interference clause, which restricts government involvement in Part D price negotiations.

In February 2019, the Trump administration offered a proposed rule.  The proposal would have banned rebates and instead, would have permitted up front discounts that would flow directly to the patient.  But the administration withdrew the proposed rule in July 2019.  The reason cited, according to various news outlets, was the administration was concerned implementing the policy would cause Medicare Part D premiums to increase in cost.  The complaint states that “HHS’s own actuaries estimated the cost of the proposed rule to be as high as $196 billion over ten years – making  it one of the most expensive regulations in history – and  predicted that seniors’ prescription drug premiums would go up by as much as 25%.” 

Our November blog post discussed how pharmaceutical companies used to give upfront discounts for their products to health plans in exchange for large volume discounts and being placed on a specific drug formulary tier.  In 1994, a class action lawsuit, which included thousands of retail pharmacies of all sizes, sued declaring price discrimination.  The case cited the Sherman Antitrust Act and the Robinson-Patman Act and there was a settlement.  Instead of discounts, a rebate process was created in its place.

But the settlement agreement expired in 1999 and the two antitrust laws still exist.  Therefore, once rebates are eliminated and up-front discounts are permitted, there would be nothing to prevent a similar lawsuit.

The other concern CAGW expressed about the November final rule were administrative process issues.  Any renewal of the rule should have also required a restart of the rulemaking process, which has not occurred.

CAGW noted in its November blog that much of the dispute and concerns over rebates is that President Trump said that Part D plan sponsors, like PBMs, do not pass along the discounts to the patients.  But an August 14, 2020 Government Accountability Office report, “Medicare Part D – Use of Pharmacy Benefit Managers and Efforts to Manage Drug Expenditures and Utilization,” found that, “PBMs retained less than 1 percent of these rebates, passing the rest to plan sponsors.  Plan sponsors in turn may use rebates to help offset the growth in drug costs, helping control premiums for beneficiaries.”

CAGW agrees Medicare Part D needs reform that would help lower costs for beneficiaries.  Congress has badly distorted Medicare Part D by implementing a price control in the coverage gap.  As a result, beneficiaries are pushed through the gap more quickly and into the catastrophic phase where taxpayers pick up 80 percent of the share, which has raised costs.

CAGW prefers a redesign of the Part D program similar to one that has been put forth by the American Action Forum which would “realign incentives” and place more risk on insurers and PBMs to encourage robust negotiation and protect beneficiaries from catastrophic financial risk by capping their out of pocket expenses.

Introducing more private competition will do far more to lower drugs costs for both beneficiaries and taxpayers then more government interference and control as this November rebate rule would do.