I. Introduction -

In May 2018, the Department of Health and Human Services (HHS) introduced a “Blueprint” and Request for Information setting forth proposed actions and policies as a means to purportedly help lower prescription drug costs.1 A major focus of the Blueprint is reform of the existing manufacturer rebate system under which drug manufacturers negotiate rebates and volume discounts with plan sponsors (and their contracted pharmacy benefit managers, or PBMs) in exchange for formulary placement and favorable coverage policies. Several proposed policies in the Blueprint, as well as other policies reportedly under review by the Administration, would result in elimination or restriction of rebates in favor of upfront discounts or fixed prices for brand drugs.

This white paper begins by describing the proposals contained in HHS’ Blueprint, as well as subsequent policy announcements, which would have the direct or practical impact of eliminating or restricting manufacturer rebates to plan sponsors and their PBMs in favor of upfront discounts. We then describe how the current rebate system came about, arising from a 1990s-era antitrust legal settlement between drug manufacturers and pharmacies.