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CAPD Comments on Proposed Rule to Remove Safe Harbor Protection for Rebates


Re: OIG-0936-P: Removal of Safe Harbor Protection for Rebates Involving Prescription Pharmaceuticals and Creation of New Safe Harbor Protection for Certain Point-of-Sale Reductions in Price on Prescription Pharmaceuticals and Certain Pharmacy Benefit Manager Service Fees

Dear Inspector General Levinson,

Thank you for the opportunity to comment on the proposed rule removing safe harbor protection for rebates. The Coalition for Affordable Prescription Drugs (CAPD) has brought together a diverse group of employers, unions, public sector employees and retirees and the pharmacy benefit managers (PBMs) they partner with to provide more affordable prescription drug coverage for millions of Americans. PBMs are critical to the success of the Medicare Part D program and the 45 million seniors that depend on Part D for affordable and accessible prescription drug coverage.

While we support the Administration’s stated goal of reducing the impact of high and rising prescription drug prices on American seniors, we do not believe that the proposed rule, as currently written, achieves this goal. The proposed rule fails to address the root cause of the problem – the high prices set and increased by drug manufacturers. In addition to not fixing the underlying problem, the proposal, as acknowledged by the Federal Government’s own analysis, will lead to increased costs for seniors and taxpayers. HHS estimates the Proposed Rule will increase Federal Government spending by up to $200 billion and increase premiums up to 25% for millions of seniors.

The proposed rule is one of the most expensive regulations ever put forth by any Administration, and, as written, will result in increased Medicare Part D premiums for seniors and pressure on the Medicare Trust Fund and American taxpayers. In sharp contrast, drug companies, will reap a huge windfall. Because the proposed rule will move fewer beneficiaries into and through the coverage gap, drug companies will end up paying billions less to Medicare – saving them $17 – $40 billion in the first ten years of the rule.

Finally, the Final Rule must not disrupt the existing, proven supply chain infrastructure so PBMs are able to facilitate discounts at the point of sale for seniors. Unless PBMs negotiate and facilitate point-of-sale discounts, existing drug discounts will be jeopardized, and net prices could increase – driving up costs across the Part D program. Maintaining the existing supply chain infrastructure is the only way to ensure seniors can effectively receive discounts at the point of sale.

Last year, CAPD released a framework to evaluate policy proposals to meaningfully lower drug pricing. This set of questions is intended to assess the impact of any proposal on multiple stakeholders – patients, purchasers and taxpayers – as well as the long-term implications on drug prices and a competitive marketplace.

We urge the Administration to consider the following analysis as it evaluates this proposed rule and any future action on drug pricing:

  1. Does the proposal raise or lower the price of a drug set by drug companies? The simple answer here is no. It does nothing to address the high prices set by drug companies, and the unsustainable rate at which they raise them. In fact, the proposed rule increases costs for the Federal Government and seniors.
  2. Does the proposal increase or decrease premiums and out-of-pocket costs for patients? According to the Federal government’s own analyses cited by HHS in the proposed rule, all six actuarial analyses showed eliminating rebates in Medicare Part D would increase premiums for millions of seniors. In the rule’s first year alone, premiums could increase by 22 percent – more than $61 per beneficiary. Within ten years, CMS estimates that premiums would increase by 25 percent. The bottom line: for a majority of beneficiaries, premium increases would be larger than any price reductions realized at the pharmacy counter. This is particularly significant because seniors rely on the stable and decreasing premiums that Part D plans and PBMs have been able to deliver. In 2019, for the second year in row, Part D premiums decreased despite drug prices set by pharmaceutical manufacturers increasing.
  3. Does the proposal increase or decrease the net cost of drugs for employers and other purchasers? While the proposed rule only addresses rebates in Medicare Part D and Medicaid Managed Care Organizations (MCO’s), the Administration has urged Congress to take similar action on private sector plans in the Commercial marketplace. Rebates are an important tool used by PBMs in the private sector to negotiate lower prices from drug companies on behalf of the employers and plans with whom they partner. These negotiations save consumers an average of $941 each year. It is hard to see how taking away effective negotiation tools would reduce the net cost of drugs for health care purchasers and enhance competition without any proposed mechanism to address the list price.
  4. Does the proposal raise or lower costs for federal and state governments and taxpayers? Based on HHS’s own actuarial analyses, the proposed rule would cost taxpayers nearly $200 billion over ten years. Estimates show that spending on direct subsidies for Part D beneficiaries would skyrocket by more than $258 billion in the first decade – an increase of 119 percent over current spending projections.
  5. Does the proposal provide a one-time price reset or does it increase competition and create sustainable downward pressure on the price of drugs over time? The proposed rule does nothing to increase competition or drive down drug prices in the long term. This is an effort that isolates just one segment of the drug supply chain with no actual proof as to whether or how this will lower net prices for patients. Even CMS itself estimates that while drug list prices may go down, net drug prices would actually rise under the proposed rule. In order to increase competition, we encourage the Administration and Congress to take action to bring an end to the gamesmanship we continue to see from big pharma. This requires closing loopholes that allow brand manufacturers to extend their monopolies and delay timely generic competition to keep prices artificially high.

For a rule intended to meaningfully reduce drug costs for seniors, the math doesn’t add up. If this proposed rule is finalized as written, seniors and taxpayers lose. The big drug companies win. Again.

We thank you for the opportunity to comment on this proposed rule and look forward to working with the Administration and Congress to ensure that American seniors and patients are able to access the prescription drugs they need at a price they can afford.


Debra Barrett

Executive Director

Coalition for Affordable Prescription Drugs