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Takeaway: Power struggles at the White House can have uncertain results but we remain convinced the rebate rule goes into effect in 2020.

One news outlet that we know of has reported that White House adviser, Joe Grogan, has been in talks with Speaker Pelosi’s staff to delay imposition of the Part D rebate rule. The deal, as reported by Biocentury but, as far as we know, not corroborated by any other news organization, would establish a Part D out-of-pocket maximum and impose some form of arbitration-like negotiation for single source Medicare drugs in exchange for elimination or deferral of the Part D safe harbor drug rebate rule.

Up until SecAzar announced a demonstration project to ease the transition away from rebates, plan sponsors had also sought a delay. Most plan sponsors have expressed an interest in the transitional demonstration and are now making plan to eliminate back-end rebates in CY 2020.

Mr. Grogan’s move, assuming it will be taken seriously, is the latest in a power struggle with Sec. Azar over drug rebates. Reportedly, Mr. Grogan had held the rebate rule at the White House for six months over concerns about increased Medicare Advantage Part D premiums. Mr. Grogan’s reputation as a deficit hawk also suggests concerns about increases in federal spending as a result of eliminating back-end rebates. The CBO puts the additional cost at $177 billion over ten years.

Sec. Azar ultimately prevailed and in most White Houses, the matter would have been settled. However, Mr. Grogan is continuing to press his case, presumably with some, at least tacit, approval of his boss.

We believe that the rebate horse is probably too far out of the barn at this point. Medicare Advantage bids are due in three weeks. Under guidance released last month, bids are to be submitted using the rebate rule in effect at the time. Plans may then enter a demonstration program in which the federal government will absorb 95 percent of losses during a two-year transition period.

To minimize disruption, assuming that is a goal, a legislative fix to delay the rebate rule and prohibit the demonstration would need to be in place by late summer - after the rule became effective but before the plan year begins. Given that the compromise with Speaker Pelosi’s office may include some sort of drug price negotiation for Medicare – a very controversial proposal at the White House and on Capitol Hill – a three month schedule seems aggressive.

The Medicare spending cap will also be controversial as it is not clear who will pay the difference between actuals costs and the cap. The answer, of course, makes the difference between whether the pharamceutical industry or the insurance

Lastly, Secretary Azar has made eliminating drug rebates a cornerstone of a complex set of policies designed to lower drug prices. He has made a number of speeches on the topic beginning a year ago and has staked his credibility on this change. A reversal in the course could be politically damaging to the White House and Sec. Azar. Mr. Grogan’s success, where it to occur, is the sort of thing over which Secretary’s resign.

We are still convinced the rebate rule moved forward with the demonstration program in 2020.

Emily Evans
Managing Director – Health Policy


Thomas Tobin
Managing Director