Drug-pricing reform might fall victim to infrastructure negotiations

As lawmakers attempt to salvage a bipartisan infrastructure package, new rules intended to crack down on secretive prescription-drug transactions might fall by the wayside.

The top Republication negotiator of the $579 billion package, Sen. Rob Portman of Ohio, on Monday told Roll Call that a rule that would ban some drugmaker rebates was likely to be axed as the parties debate how to pay for the infrastructure. 

The rebates the rule would prohibit flow to some programs financed by Medicare and Medicaid. They save the government money, but some experts say they’re also a major driver of increasing prices for branded drugs. That can put big dents in the bank accounts of the uninsured as well of those paying coinsurance or meeting deductibles because they typically have to pay based on the inflated amounts. 

Republicans and Democrats are fighting over “pay-fors” to finance the bipartisan infrastructure bill. 

One idea was to provide the Internal Revenue Service with more resources so it could go after wealthy deadbeats who aren’t paying all the taxes they owe. That would raise an estimated $60 billion to $100 billion and it enjoys the support of 58% of voters — including about half of Republicans.

But that measure appears to be off the table for reasons that aren’t completely clear.

Portman said that Democrats want to use it for a separate, $3.5 trillion infrastructure bill they plan to pass under special rules that only require them to get 50 Senate votes. For their part, Democrats say Senate Republicans don’t want to do anything that could be seen as helping the IRS.

Portman’s office didn’t respond to questions Tuesday.

But it looks as if Portman is looking to eliminate the rebate rule so that federal health programs can collect more from drugmakers. The Congressional Budget Office estimates that ditching it will net the federal health programs about $180 billion in rebates over a decade.

Developed under the Trump administration, the rule would eliminate “safe harbors” protecting pharmacy middlemen from prosecution under federal anti-kickback laws.

The middlemen, known as pharmacy benefit managers or PBMs, manage drug transactions several ways. 

They contract with payers such as insurance companies, which are often owned by the same corporation. They create lists of insured drugs. And they negotiate rebates and other discounts with drugmakers who want access to all the “covered lives” the PBMs and insurers represent.

While some portion of rebates are refunded back to government programs such as Medicare and Medicaid, critics say they’re part of a non-transparent system that’s driving up costs.

For example, the Schaeffer Center at the University of Southern California last year published a white paper illustrating the linkage between increasing rebates and list prices, which some experts say increase to cover the cost of rebates.

“There is a near one-to-one relationship between rising rebates and rising list prices for branded prescription drugs,” Neeraj Sood, a senior fellow at the USC Schaeffer Center for Health Policy & Economics said in a statement.

He and a co-author, Karen Van Nuys, looked at list prices and rebates from 2015 to 2018 for 1,300 brand-name drugs, or about 84% of all those prescribed in the United States during that period. They found that every $1 increase in rebates can be associated with a $1.17 increase in list prices.

“High list prices impact a lot of patients directly, including uninsured as well as insured patients whose copays and deductibles are based on the drugs’ list price. They also impact overall healthcare spending,” Van Nuys said. She added, “Recently PBMs have made the argument that manufacturers set list prices unilaterally and therefore they are solely responsible for increasing list prices. This research suggests there is a much more dynamic relationship at play.”