Bringing Down U.S. Drug Prices

Turning pharmaceutical kickbacks into patient rebates might help.

Dr. Mary Tipton looks on as President Donald J. Trump displays his signature after signing Executive Orders on lowering drug prices Friday, July 24, 2020, in the South Court Auditorium in the Eisenhower Executive Office Building at the White House. (Official White House Photo by Shealah Craighead)

On July 24, President Trump signed four executive orders enabling U.S. Department of Health and Human Services Secretary Alex Azar to take several important steps towards lower the cost of prescription drugs for U.S. consumers.

One of the executive orders signed by President Trump prohibits secret deals between drug manufacturers and pharmacy, “benefit managers,” ensuring patients directly benefit from available discounts at the pharmacy counter.

Dr. Mary Tipton is a practicing physician from the bipartisan coalition invited to President Trump’s executive order signing on July 24, 2020. Dr. Tipton is also a member of Free2Care, a national coalition of over 8 million doctors and patients, “dedicated to solutions that make healthcare affordable and accessible.”

Trump’s executive order will redirect kickbacks from Medicare part D to consumers, which is estimated to save around $30 billion a year. Dr. Tipton has recognized the importance of this action, but argues that it doesn’t go nearly far enough. If Congress took similar action on all legalized kickbacks in the health care supply chain, Dr. Tipton estimates a much larger potential savings of up to $200 billion per year.

Congress could take immediate action by repealing the Safe Harbor Statute created in 1987 and expanded in 2003.

In 1987, the innocuously-named, “Safe Harbor Statute,” granted Group Purchasing Organizations (GPOs) the right to receive financial incentive kickbacks. In 2003, the United States Department of Health and Human Services (HHS) extended the right to Pharmacy Benefit Managers (PBMs) and created a safe harbor for them to legally benefit.

The PBM Safe Harbor is intended to protect certain fixed fee arrangements between manufacturers and PBM’s.

Prescription drug manufacturers prospectively set the list price of the drugs they sell to wholesalers and other large purchasers. Manufacturers pay PBMs in the drug supply chain under rebate arrangements that meet the criteria protected by these safe harbors.

Three big Pharmacy Benefit Managers- Express Scripts, CVS/Caremark and Optum- control approximately 85% of the prescription…