Pharma Leaders Draw Line in the Sand and Back HHS Rebate Plan

green pills spilling out from white bottle on stack of $100 bills

After Department of Health and Human Services Secretary Alex Azar, a former executive with Eli Lilly, unveiled a pricing reform that would allow pharma companies to end the rebate system and pass those savings directly to consumers, leaders from across the pharma industry are offering early support for the proposal.

Earlier this month, Azar floated a proposal that would encourage drug manufacturers to pass discounts directly to patients instead of insurers and pharmacy benefits managers. Since the idea was announced, it has received tentative support from both Pharmaceutical Research and Manufacturers of America (PhRMA) and Biotechnology Innovation Organization (BIO), two powerhouse industry organizations. Stephen Ubl, president and chief executive officer of PhRMA, said the cost plan will be of particular benefit to patients who are dealing with chronic diseases, such as diabetes. These diabetes patients who rely on insulin are often not benefitting from significant rebates and discounts, Ubl said last week. Jim Greenwood, CEO of BIO, also said his organization strongly supports Azar’s proposal. He said the rebates offered by pharma companies to PBMs are often not passed along to the consumer and “pad the profits of middlemen.”

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The HHS proposal is also receiving support from several other industry leaders – even after many of them increased prices on their pharmaceutical products earlier this year. The rebate system is murky and lacks transparency. The rebates and pricing mechanisms used are hashed out in secret between drug manufacturers and the PBMs. While little is known about how much money both sides receive from the current arrangement, at least one CEO is providing some kind of information.

Novartis CEO Vas Narasimhan told Reuters that he supported the HHS proposal. In an interview with the wire service, Narasimhan said the company pays about 50 percent of its gross revenues in the United States to the rebate program, primarily to ensure that the company’s products are placed on health insurers lists of covered medicines. Narasimhan said if those rebates are passed directly on to patients, they will pay less out of pocket.

“I think that is something that makes a lot of sense and will correct a distortion in the marketplace,” Narasimhan said in the interview.

Narasimhan isn’t the only executive to get on board to support the plan and place some of the blame for high prescription prices on the shoulders of the insurance companies and pharmacy benefits managers, rather than on the drugmakers. According to the Wall Street Journal, Merck & Company CEO Kenneth Frazier said the “current pharmaceutical supply chain includes various misaligned incentives that serve to support middlemen while often neglecting patients.”

David Ricks, CEO of Eli Lilly and Company, Azar’s former company, said that as his colleagues see things now, the HHS proposal is a win for patients. He also added that the proposal will lower out-of-pocket costs for patients when the pay for their medicines at the pharmacy. Ricks noted that the greatest benefit will be realized by patients taking more highly-rebated products such as insulin,” according to a report in The New York Times.

The pharmacy leaders have publicly announced their support of the HHS proposal after President Donald Trump, a vocal critic of high drug prices, called for a lowering of costs during his State of the Union Address earlier this week.

Insurers and PBMs are fighting the proposal though, or are at least fighting the idea that it is their part of the pricing plan that is fully to blame for the high prices. The Pharmaceutical Care Management Association, a trade group for PBMs, issued a report that noted that price increases made by drugmakers are unrelated to the rebates, the Journal reported. PCMA Chief Executive JC Scott told the Journal that the early support for Azar’s proposal is “a coordinated distraction technique from the pharmaceutical manufacturers.”

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