Executive Order Revives HHS Proposed Rule on Prescription Drug Rebates

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Faegre Drinker Biddle & Reath LLP

On July 24, 2020, President Trump signed four Executive Orders related to drug pricing that direct the Secretary of Health and Human Services (HHS) to take a number of actions aimed at lowering prescription drug prices. These HHS actions generally are not expected to apply directly to employer-sponsored group health plans. However, the Executive Order on “Lowering Prices for Patients by Eliminating Kickbacks to Middlemen” (the Order) could have an indirect impact on such plans, or provide an indication of things to come.

The Order directs HHS to finalize a proposed rule that would (1) remove safe harbor protections for, among other things, remuneration that drug manufacturers provide to health plan sponsors, pharmacies or pharmacy benefit managers (PBMs) in operating the Medicare Part D program and Medicaid managed care organizations, and (2) establish a new safe harbor that would permit the same entities to apply discounts at the patient’s point of sale in order to lower participant out-of-pocket costs.

As mentioned, the proposed rule applies to Medicare Part D and Medicaid managed care organizations, and does not directly impact employer-sponsored pharmacy benefit plans. However, given the impact on PBMs, if the proposed rule is finalized, it could impact how rebates are offered in the employer marketplace. In addition, although changes to pharmacy rebates for employer-sponsored pharmacy benefit plans would require federal legislation, employers should monitor Congress’ actions and be prepared for changes that impact rebates or the marketplace.

Finally, note that the Order directs HHS to confirm that the proposed rule will not increase federal spending, Medicare beneficiary premiums or out-of-pocket costs for patients. These conditions make it significantly less likely that the proposed rule will take effect. Prior to the Order, HHS had withdrawn the proposed rule following a Congressional Budget Office finding that it was expected to cost taxpayers $177 billion over the next decade and would have raised premiums under Medicare Part D.

The other Executive Orders do not directly impact employer-sponsored health plans, but aim to change the prescription drug marketplace, and could have a far-reaching impact. These Orders aim to allow the importation of drugs from other countries at favorable prices, make EpiPens and insulin more affordable for patients of community-based health centers, and apply “most favored nation” status for the United States, which would tie the prices that Medicare pays for drugs to the prices other countries pay. It likely will take considerable time for HHS to implement these initiatives.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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