Trump admin offers Medicare insurers phase-in for controversial drug rebate rule

The Trump administration will allow insurers in the Medicare program to phase-in compliance with a sweeping proposal to eliminate the opaque rebates that flow from drug companies to middleman price negotiators.

The offer of a two year transition period – outlined in a bulletin on Friday from Centers for Medicare and Medicaid Services Administrator Seema Verma – comes as insurers and pharmacy benefit managers (PBM) warn that premiums could rise for seniors should the rule go into effect in 2020, which is the agency’s goal.

“Participation in the two-year demonstration would be voluntary and plans choosing to participate would do so for both years,” Verma wrote.

The move could allow the White House to avoid a potentially politically dicey situation, under which insurance costs could rise for a key GOP voting bloc months before the presidential election.

It also comes as concerns grow over what would be a tight window between the rule getting finalized and the deadline for insurers to submit bids to Medicare for next year.

Under the new proposal, insurance companies would submit their proposed 2020 plans to Medicare based on existing law, which allows for drug companies and PBMs to negotiate treatment prices based upon rebates.

Should the rule be finalized, those rebates would technically be illegal. And while theoretically there should be a direct translation from rebates to direct discounts, there could be some variation.

To mitigate that risk, the federal government now says it would pick up 95 percent of any additional costs incurred by insurers who participate in the demo.

Ticker Security Last Change Change %
CVS CVS HEALTH CORP. 67.81 +0.91 +1.35%
CI THE CIGNA GROUP 264.75 +1.89 +0.72%
UNH UNITEDHEALTH GROUP INC. 549.31 +14.07 +2.63%

The move to eliminate the rebates – which is embraced by pharmaceutical companies and opposed by insurers and PBMs – is one of the most significant actions by the Trump administration to try to lower drug costs.

Pharmaceutical companies largely declined to confirm whether they would lower list costs should the rule go into effect. While it would only impact treatments offered under federal programs, some lawmakers are pushing legislation to expand it to the commercial market.


Under the current system, drugmakers pass the rebates along to PBMs, who use the discounts to lower treatment prices for employers and other clients.

Lawmakers and pharmaceutical companies argue that PBMs use the rebates to pad profits instead of reducing costs for patients.