New safe harbor provision will allow drug makers to give discounts directly to consumers.

In a recent press release, Health and Human Services Secretary Alex Azar indicated that the U.S. government intends to change the safe harbor provisions that allow drug companies to pay rebates to pharmacy benefit managers (PBMs). Rather than give the rebates to PBMs, the new provision will allow drug makers to give the rebates directly to consumers. The PBMs would earn a fixed price fee.

The new rules target publicly funded health plans in the United States, but would likely impact the private insurance market as well. Initially, the change will be most advantageous for seniors on Medicare and Medicaid, according to the press release. In addition, the logic behind the change is that, once the cost of Medicare and Medicaid medication is public, hidden retail drug prices will be eliminated.

Rebates are essentially secret deals between pharma companies and PBMs and, according to the U.S. government, can involve discounts of as much as 30% of the list price. Companies rely on these rebates to gain favorable positions with the PBMs; they also impact the copays made by members. Patients, however, often pay for their medicines based on the list price.

The proposed rules would ideally lower out-of-pocket costs for patients and eliminate misaligned incentives in the system, which result in insurers and PBMs favoring medicines with high list prices, according to Stephen Ubl, head of the Pharmaceutical Research and Manufacturers of America (PhRMA). 

“This historic action, combined with other administrative and legislative efforts on prescription drug pricing, is a major departure from a broken status quo that serves special interests and moves toward a new system that puts American patients first,” Azar said in a statement. “Democrats and Republicans looking to lower prescription drug costs have criticized this opaque system for years, and they could pass our proposal into law immediately.”