Lowering Prices for Patients by Eliminating Kickbacks to Middlemen
Executive Order 13939, signed July 24, 2020, directs the Department of Health and Human Services (HHS) to change how prescription drug rebates and discounts are treated under the anti-kickback statute in the Medicare Part D program. The core goal is to reduce the amount patients pay out-of-pocket by shifting discounts and rebates away from middlemen (such as health plan sponsors and pharmacy benefit managers, or PBMs) and toward the patient at the point of sale. The order orders HHS to complete rulemaking that (a) excludes certain retrospective price reductions from safe harbor protections, and (b) creates new safe harbors that permit point-of-sale discounts and certain PBM service fees to be used to lower patient costs. Before acting, HHS must confirm that the changes would not increase federal spending, Medicare premiums, or patient out-of-pocket costs. The overall intent is that discounts should be passed to patients rather than captured by middlemen.
Key Points
- 1The problem identified: complex payer/middleman structures often separate patients from the actual drug price, enabling large rebates to middlemen that do not directly lower patients’ costs at the point of purchase. The current safe harbors under the anti-kickback statute allow these rebates to be treated as non-kickbacks, which the order describes as contributing to high patient costs in Medicare Part D.
- 2Directing rebates toward patients: Sec. 3 directs HHS to complete rulemaking to (a) exclude certain retrospective price reductions that are not applied at the point of sale from safe harbor protections, and (b) establish new safe harbors that would allow discounts to be applied at the patient’s point of sale and permit certain bona fide PBM service fees.
- 3Policy goal: Sec. 2 states a clear policy that discounts offered on prescription drugs should be passed on to patients.
- 4Safeguards on actions: Sec. 4 requires the Secretary of Health and Human Services to confirm publicly that these actions are not projected to increase federal spending, Medicare beneficiary premiums, or patients’ total out-of-pocket costs before moving forward.
- 5Legal and implementation framework: Sec. 5 provides general provisions, stating that the order does not override existing legal authorities, and it must be implemented consistent with applicable law and available appropriations. It also clarifies that the order does not create enforceable rights.