Bloomberg Law
July 11, 2019, 11:29 AMUpdated: July 11, 2019, 5:52 PM

Trump Kills Drug Rebate ‘Safe Harbor’ Rule That Favored Pharma (5)

Shira Stein
Shira Stein

The Trump administration reversed course on a proposed rule to end the rebates that drug manufacturers pay to pharmacy liaisons.

The rule had been heavily lobbied for by pharmaceutical companies, a move that backfired and contributed to the decision to stop moving forward with the rule, according to two sources briefed on the discussions. The Pharmaceutical Research and Manufacturers of America (PhRMA) told the government in April that it supports the proposal to change the rebate system and considers the changes “too important to delay.”

The trade group also launched an ad campaign in support of the rule.

“Based on careful analysis and thorough consideration, the President has decided to withdraw the rebate rule. The Trump administration is encouraged by continuing bipartisan conversations about legislation to reduce outrageous drug costs imposed on the American people, and President Trump will consider using any and all tools to ensure that prescription drug costs will continue to decline,” White House spokesman Judd Deere said in a statement to Bloomberg Law.

Health and Human Services Secretary Alex Azar said at a press briefing July 11 that the decision to withdraw the drug rebate proposal was based on fears that it could cause seniors’ premiums for prescription drugs to increase.

“The president made that call and I totally support him on that,” Azar said. “We’re not going to put seniors at risk of their premiums going up, and we all agree on that.”

Careful Decision

The decision was made at a July 10 meeting involving President Donald Trump, Azar, Centers for Medicare & Medicaid Services Administrator Seema Verma, and senior White House advisers including Kellyanne Conway, Larry Kudlow, and Tomas Philipson.

Trump decided to kill the rule because of the high cost to the government and because of a concern that the rule could benefit drug companies, according to two sources briefed on the meeting.

PhRMA mounted an ad campaign in support of the rule that led Trump and his advisers to think the drug industry saw the rule as a potential windfall, the sources said. Trump already thinks drug companies are too profitable and wanted to prevent them benefiting from the rule.

“The Administration’s decision to not move forward on the proposed rule to reform the rebate system in Medicare Part D is a blow to seniors who could have paid less for their medicines at the pharmacy counter,” PhRMA said in a statement. “It is disappointing that despite support from policymakers on both sides of the aisle and from a wide array of consumer, patient, pharmacist and provider groups that they have decided to backtrack.”

The White House also took into consideration its recent loss in a lawsuit that challenged a rule requiring drugmakers to put their list prices in direct-to-consumer advertising, one source said.

The abandoned rule would have gotten rid of a “safe harbor” that exempted drug rebates from an anti-kickback statute, which prohibits payments for recommending products or services to patients covered by Medicare or Medicaid.

The rule also would have created a new safe harbor to protect direct discounts to patients at the pharmacy counter and a new safe harbor protection for fixed-fee service arrangements between drugmakers and the middlemen between the manufacturers and pharmacies.

The proposed rule saw criticism from lawmakers and advocates due to its high cost to the government. It was estimated to cost taxpayers $177 billion over a decade, according to the Congressional Budget Office.

Focus on Congress

The administration is planning to focus on passing legislation and move away from administrative rulemaking when it comes to lowering prescription drug prices, the same source said. However, the HHS still plans to move forward with a proposal to peg Medicare payments for expensive physician-administered drugs to what other countries pay for the same drugs.

Congress can “look more holistically at changes to the system that could also mitigate or protect seniors from rate increases,” Azar said, adding that the HHS will work with Congress to pass drug pricing legislation.

Senate Finance Committee Chairman Chuck Grassley (R-Iowa,) who is working on a package of bills to lower drug prices, said in a statement that “the withdrawal puts even more pressure on Congress to step up to the plate.”

“It’s time for Congress to legislate and deliver on our promise to lower health care costs for Americans,” Grassley said.

The decision does not stop the administration’s opposition to rebates, Azar said. “We’re going to continue to see the days of rebates are over.”

The Biotechnology Innovation Organization, which represents companies that make complex drugs derived from living tissue, said the administration is “succumbing to the same old scare tactics we see from the insurance industry” when policymakers address their relationship with drug middlemen.

“The president has promised to rein in the role of middlemen and ensure patients directly benefit from the significant rebates biopharmaceutical companies provide, but today that promise was broken,” said BIO President Jim Greenwood.

“This decision is a huge win for America’s seniors and a huge loss for Big Pharma,” said Lauren Aronson, executive director of the Campaign for Sustainable Rx Pricing, an advocacy group that works on lowering drug prices. “We applaud the administration for seeing through Big Pharma’s blame game and making the right call to withdraw this controversial rule.”

Axios first reported the decision to kill the rule.

—With assistance from Tony Pugh

(Updates with statement from Grassley in 17th and 18th paragraphs. )

To contact the reporter on this story: Shira Stein in Washington at

To contact the editor responsible for this story: Fawn Johnson at