President Signs Executive Orders Aimed at Lowering Drug Prices

Agencies directed to take steps to rein-in prescription drug costs

Stephen Miller, CEBS By Stephen Miller, CEBS July 29, 2020
Woman paying cash to purchase medications at pharmacy.

On July 29, the Federal Register published three executive orders signed by President Donald Trump five days earlier, directing the federal government to take steps to lower cost increases for prescription medications. Prescription drug costs are a leading driver of rising premiums for Medicare, employer-sponsored and ACA marketplace health plans. The declarations were:

  • An Executive Order on Lowering Prices for Patients by Eliminating Kickbacks to Middlemen, which calls for regulations to direct manufacturers' drug rebates to be passed along as discounts to consumers at the pharmacy point-of-sale instead of being kept by pharmacy benefit managers (PBMs) or health plans. While the order applies to privately administered Medicare Part D prescription drug plans, that market is so large that pricing policy changes by pharmaceutical firms and PBMs could spill over to ACA marketplace and employer-sponsored health plans as well, drug industry analysts said.

A fourth order, also signed on July 24 but not yet published, aims to ensure that U.S. consumers pay the lowest price available among economically advanced countries for drugs covered by Medicare Part B.

SHRM Online has selected the following articles to provide a deeper look into this topic. 

Orders Face Implementation Hurdles

The president's power to enact policy through executive order is limited, so the orders largely command the Department of Health and Human Services (HHS) to move forward with the formal rulemaking process, which takes time. The pharmaceutical industry supports the order to eliminate the discounts they issue, known as rebates. But a different arm of the health care industry, PBMs that negotiate drug prices, oppose the rule and argue it will lead to higher premiums.

The new rules cannot go into effect until the HHS secretary certifies that the move will not increase federal spending or premiums. An earlier version of the rebate proposal was projected to do both, meaning that it is unclear if the new changes will actually end up going into effect.

(The Hill

Administration's Actions Praised and Criticized

Blair Childs, senior vice president of public affairs at Premier, a health care improvement company, said his firm was "pleased to see the administration reinvigorating the discussion around drug pricing and increased competition." He added, "The COVID-19 pandemic only intensifies the need to revive this debate and to use competitive forces to make life-saving treatments more affordable to Americans."

But Ameet Sarpatwari, an assistant professor of medicine at Harvard Medical School, dismissed the president's actions as a political ploy, saying, "Clearly what this speaks of is a bit of desperation as to the president's sinking in the polls and needing to show that he is doing something about a campaign commitment from four years ago on which there hasn't really been much action."

(PharmaNews Intelligence and NPR

Narrowing the Safe Harbor for Rebates

Federal regulations have established a safe harbor for PBM rebates that precludes them from being treated as kickbacks. Without providing further detail, the executive order states it would narrow the safe harbor for rebates under a federal anti-kickback statute. Removing the safe harbor exemption would end rebates as we know them, as they would be subject to being considered illegal kickbacks if they were not passed along to consumers. Instead of PBMs receiving rebates in exchange for moving market share towards products given a preferred position on the formulary, PBMs would receive a fixed fee per prescription handled under the policy change.


[SHRM members-only toolkit: Managing Health Care Costs] 

Azar Backed Withdrawn Rebate Proposal

PBMs receive "tens of billions of dollars in rebates without patients—or the employers who pay a big chunk of the bill—ever knowing where the money goes," HHS Secretary Alex Azar said in February last year, shortly after HHS had issued a proposed rule targeting PBM rebates. But the administration withdrew the proposal in July 2019 after it was strongly opposed by PBMs.

In support of the proposal, Azar said that replacing rebates with upfront discounts "will be an immensely positive step for patients, employers and prescription drug markets overall." Lower-cost generic drugs—and brand-name drugs that have cut their list price—are "struggling to get placement on insurers' formularies because they have lower rebates they can funnel to the pharmacy benefit manager," he noted, and that is holding back lower-cost options from patients who are covered through employer plans.

(SHRM Online)

Related SHRM Articles:

HHS 2021 Health Plan 'Parameters' Raise Out-of-Pocket Maximums, SHRM Online, May 2020

SHRM Asks Supreme Court to Uphold ERISA's Uniform Standard for Drug Plans, SHRM Online, April 2020

New Tactic Emerges to Control Rx Spending, HR Magazine, September 2019



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