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Executive Order Revives HHS Proposed Rule on Prescription Drug Rebates

On July 24, 2020, President Trump signed four Executive Orders related to drug pricing that direct the Secretary of Health and Human Services (HHS) to take a number of actions aimed at lowering prescription drug prices. These HHS actions generally are not expected to apply directly to employer-sponsored group health plans. However, the Executive Order on “Lowering Prices for Patients by Eliminating Kickbacks to Middlemen” (the Order) could have an indirect impact on such plans, or provide an indication of things to come.

The Order directs HHS to finalize a proposed rule that would (1) remove safe harbor protections for, among other things, remuneration that drug manufacturers provide to health plan sponsors, pharmacies or pharmacy benefit managers (PBMs) in operating the Medicare Part D program and Medicaid managed care organizations, and (2) establish a new safe harbor that would permit the same entities to apply discounts at the patient’s point of sale in order to lower participant out-of-pocket costs.

As mentioned, the proposed rule applies to Medicare Part D and Medicaid managed care organizations, and does not directly impact employer-sponsored pharmacy benefit plans. However, given the impact on PBMs, if the proposed rule is finalized, it could impact how rebates are offered in the employer marketplace. In addition, although changes to pharmacy rebates for employer-sponsored pharmacy benefit plans would require federal legislation, employers should monitor Congress’ actions and be prepared for changes that impact rebates or the marketplace.

Finally, note that the Order directs HHS to confirm that the proposed rule will not increase federal spending, Medicare beneficiary premiums or out-of-pocket costs for patients. These conditions make it significantly less likely that the proposed rule will take effect. Prior to the Order, HHS had withdrawn the proposed rule following a Congressional Budget Office finding that it was expected to cost taxpayers $177 billion over the next decade and would have raised premiums under Medicare Part D.

The other Executive Orders do not directly impact employer-sponsored health plans, but aim to change the prescription drug marketplace, and could have a far-reaching impact. These Orders aim to allow the importation of drugs from other countries at favorable prices, make EpiPens and insulin more affordable for patients of community-based health centers, and apply “most favored nation” status for the United States, which would tie the prices that Medicare pays for drugs to the prices other countries pay. It likely will take considerable time for HHS to implement these initiatives.

© 2020 Faegre Drinker Biddle & Reath LLP. All Rights Reserved.National Law Review, Volume X, Number 217


About this Author

Dawn Sellstrom, Benefits and healthcare lawyer, Drinker Biddle

Dawn E. Sellstrom practices in all areas of employee benefits law with a focus on health and welfare benefits, including health care reform. Dawn advises clients on health and welfare benefits of all types and compliance with the Employee Retirement Income Security Act (ERISA), the Internal Revenue Code, Health Insurance Portability and Accountability Act (HIPAA), and related federal and state laws and regulations.

Dawn works closely with clients to analyze the Affordable Care Act (ACA), develop strategy, and design medical plans and...

Elizabeth Olson, Drinker, employment lawyer

Elizabeth “Betsy” A. Olson advises plan sponsors on the design and operation of qualified retirement plans and health and welfare plans to ensure compliance with ERISA and the Internal Revenue Code. Betsy has experience drafting and negotiating service provider contracts, preparing government filings, resolving pension and health plan claims, and correcting retirement plan qualification and operational failures under the IRS correction program. She also assists with Department of Labor audits, conducts employee benefit due diligence reviews, and drafts plan documents, summary plan descriptions, and employee communications.

Prior to joining Drinker Biddle, Betsy was an employee benefits associate at another Am Law 100 firm.

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