Lowering Prices for Patients by Eliminating Kickbacks to Middlemen
Signed: July 24, 2020
Published: July 29, 2020
Document Number: 2020-16625
đSummary
This executive order aims to lower what Medicare patients pay for prescription drugs by reducing the role of ârebatesâ that drug makers pay to middlemen like pharmacy benefit managers (PBMs) and health plan sponsors. It mainly affects the Medicare Part D program, including drug manufacturers, PBMs, pharmacies, and health plans that negotiate and receive these rebates. It directs the Department of Health and Human Services to finish a rulemaking that would remove legal protections for certain rebates that are paid after the sale and not reflected in the price a patient pays at the pharmacy, and to create protections for discounts that are applied directly at the point of sale and for legitimate PBM service fees. Before making these changes, HHS must publicly confirm that the action is not expected to raise federal spending, Medicare premiums, or patientsâ total out-of-pocket costs.
đźBusiness Impact
This order primarily impacts the Medicare Part D drug supply chainâpharmaceutical manufacturers, PBMs, Part D plan sponsors/insurers, and pharmaciesâby targeting ârebateâ arrangements that are paid after the sale and not reflected in the patientâs price at the counter. If HHS finalizes the referenced rulemaking, businesses that rely on retrospective rebates (especially PBMs and plans) may need to redesign contracts so discounts are applied at point-of-sale and PBM compensation shifts toward âbona fideâ service fees, creating opportunities for pharmacies and manufacturers to compete on transparent, upfront pricing. Companies should immediately inventory all Medicare Part D rebate/discount and fee arrangements, model financial impacts of moving rebates to point-of-sale (including premium and pricing implications), and prepare compliance updates for Anti-Kickback Statute safe-harbor changes (contract language, fee documentation, audit trails). Also monitor HHS/OIG rulemaking closely because implementation is conditioned on public confirmation that changes wonât raise federal spending, beneficiary premiums, or total out-of-pocket costsâtiming and scope may shift based on those projections.
Full Text
Executive Order 13939 of July 24, 2020
Lowering Prices for Patients by Eliminating Kickbacks to Middlemen
By the authority vested in me as President by the Constitution and the laws of the United States of America, it is hereby ordered as follows:
Section 1 . Purpose. One of the reasons pharmaceutical drug prices in the United States are so high is because of the complex mix of payers and negotiators that often separates the consumer from the manufacturer in the drug-purchasing process. The result is that the prices patients see at the point-of-sale do not reflect the prices that the patient's insurance companies, and middlemen hired by the insurance companies, actually pay for drugs. Instead, these middlemen—health plan sponsors and pharmacy benefit managers (PBMs)—negotiate significant discounts off of the list prices, sometimes up to 50 percent of the cost of the drug. Medicare patients, whose cost sharing is typically based on list prices, pay more than they should for drugs while the middlemen collect large “rebate” checks. These rebates are the functional equivalent of kickbacks, and erode savings that could otherwise go to the Medicare patients taking those drugs. Yet currently, Federal regulations create a safe harbor for such discounts and preclude treating them as kickbacks under the law.
Fixing this problem could save Medicare patients billions of dollars. The Office of the Inspector General at the Department of Health and Human Services has found that patients in the catastrophic phase of the Medicare Part D program saw their out-of-pocket costs for high-price drugs increase by 47 percent from 2010 to 2015, from $175 per month to $257 per month. Narrowing the safe harbor for these discounts under the anti-kickback statute will allow tens of billions in dollars of rebates on prescription drugs in the Medicare Part D program to go directly to patients, saving many patients hundreds or thousands of dollars per year at the pharmacy counter.
Sec. 2 . Policy. It is the policy of the United States that discounts offered on prescription drugs should be passed on to patients.
Sec. 3 . Directing Drug Rebates to Patients Instead of Middlemen. The Secretary of Health and Human Services shall complete the rulemaking process he commenced seeking to:
(a) exclude from safe harbor protections under the anti-kickback statute, section 1128B(b) of the Social Security Act, 42 U.S.C. 1320a-7b, certain retrospective reductions in price that are not applied at the point-of-sale or other remuneration that drug manufacturers provide to health plan sponsors, pharmacies, or PBMs in operating the Medicare Part D program; and
(b) establish new safe harbors that would permit health plan sponsors, pharmacies, and PBMs to apply discounts at the patient's point-of-sale in order to lower the patient's out-of-pocket costs, and that would permit the use of certain bona fide PBM service fees.
Sec. 4 . Protecting Low Premiums. Prior to taking action under section 3 of this order, the Secretary of Health and Human Services shall confirm—and make public such confirmation—that the action is not projected to increase Federal spending, Medicare beneficiary premiums, or patients' total out-of-pocket costs.
Sec. 5 . General Provisions. (a) Nothing in this order shall be construed to impair or otherwise affect: ( printed page 45760)
(i) the authority granted by law to an executive department or agency, or the head thereof; or
(ii) the functions of the Director of the Office of Management and Budget relating to budgetary, administrative, or legislative proposals.
(b) This order shall be implemented consistent with applicable law and subject to the availability of appropriations.
(c) This order is not intended to, and does not, create any right or benefit, substantive or procedural, enforceable at law or in equity by any party against the United States, its departments, agencies, or entities, its officers, employees, or agents, or any other person.
THE WHITE HOUSE,
July 24, 2020.