Trump Administration Points Medicare & Medicaid Toward A World Without Rebates

On  Thursday  evening,  Health  and  Human  Services  Secretary Azar released  the details of a long anticipated proposal to radically transform the way pharmaceuticals are paid for, potentially ushering in significant changes for  PBMs,  manufacturers  and beneficiaries.

Since HHS and OIG first proposed changes in July of 2018, Nephron Research has published a series of in-depth reports contemplating a “World Without Rebates”.  This morning, Eric Percher published a rapid but detailed response to Thursday evening’s proposal titled: Trump Administration Points Medicare & Medicaid Toward A World Without Rebates.  For more information on the report and Nephron Research email

From the report:

  • The detailed proposal represents the most aggressive of the four potential outcomes we had envisioned – this is a full  shift  from rebates to discount s for government programs but not a complete de-linking of the supply chain from list prices.
  • For PBMs, the key question is contagion to the commercial market – the proposal will radically alter payment mechanisms within federal programs but PBM profits are concentrated in commercial, making the mechanisms of potential contagion a key focus.
  • For distributors, we do not seen a significant decline in list prices, the real risk is a slowdown in list price growth – the proposal is unlikely to reduce list or WAC prices (rather rebates will transition to discounts, with WAC remaining relatively stable).  Distributors may lose benefit of gross price increases but we see new opportunities to play a significant role in supporting the flow of funds under the new discount system.
  • Timing is aggressive and consequently represents the single biggest risk – given a fair transition period we are confident supply chain players can adjust their contracts and develop the technology necessary to support a move to discounts.  However the proposed effective date of Jan 1, 2020 is not realistic.

Additionally, team Percher address the potential impact to the commercial market, implications for value based contracting, and the clear tradeoff between out of pocket cost and premiums.  As suggested in our prior reports on World Without Rebates, Percher cautions that today’s aggressive proposal may represent the “ask” whereas the original POS rebate  proposal  first  floated  in  late  2017 might still be the ‘bid’ or ultimate outcome.

Evaluating Potential Rebate Replacements: The HHS proposal aligns with our discount model outcome
Source: Nephron Research LLC