Trump Administration Withdraws Drug Rebate Plan

The Trump administration will no longer proceed with a large-scale overhaul of the drug-rebate industry.

What Happened

Pharmacy benefit managers (PBMs) negotiate a drug discount on behalf of health insurers and collect a commission for themselves as profit. Critics of the system argued it gives drugmakers an incentive to keep drug prices high and the Trump administration was looking at banning this practice within Medicare and Medicaid, Axios reported. Instead, PBMs would need to pass on that rebate to patients at the pharmacy counter and generate revenue in other forms.

A White House spokesperson said in a statement obtained by Politico the administration will "consider using any and all tools to ensure that prescription drug costs will continue to decline."

Why It's Important

The latest development is a negative development for pharmaceutical companies who typically blame the middlemen for high drug prices. On the other hand, the news is a positive development for PBMs.

Shares of CVS Health Corp CVS traded higher by 6.3%, while Walgreens Boots Alliance WBA was up about 2%.

UnitedHealth Group Inc. UNH (up 3.3%), Cigna Corp CI (up 9.6%) and Humana Inc HUM (up 4.5%) all traded higher.

The Trump administration could feel the pressure of finalizing other initiatives to lower drug prices. A source close to the administration told Axios a potential "executive order of choice" consists of setting Medicare's prices for certain drugs to be equal to prices that other countries pay.

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