- Pharmacy and health-insurance stocks jumped Thursday after the White House announced plans to scrap its drug-rebate plan.
- The proposal was part of the Trump administration’s efforts to reduce drug costs. If implemented, the rebate rule would have prevented pharmacy benefit managers from profiting on deals made between drug companies and insurers.
- Administration officials and Health and Human Services Secretary Alex Azar disagreed on whether the rebate rule would be worth the approximately $180 billion it was expected to cost the government over a decade.
- The decision spares PBMs from having a major chunk of their revenue taken away.
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CVS, Cigna, and other major players in the pharmacy-benefit-management space surged Thursday after the Trump administration said it would abandon its effort to eliminate rebates from government drug plans.
The now-scrapped proposal would have barred pharmacy benefit managers, the intermediaries that negotiate between drug manufacturers and insurance plans, from collecting portions of drug rebates for themselves as profit. PBMs would pass rebates to patients covered by Medicare and Medicaid and find a different way to increase revenue.
The rebate rule served as a centerpiece for President Donald Trump’s plan to reduce drug prices, and it would’ve deprived PBMs of a crucial portion of their overall revenue stream.
List prices for pharmaceuticals have been increasing over the past decade. But many drug companies have said net prices — which factor in discounts and rebates negotiated by PBMs on behalf of employers and insurers — have increased by far less or even declined. They say consumers are paying high out-of-pocket costs for their drugs because of policies set by insurers and pharmacy benefit managers.
As such, the healthcare industry was divided on the proposal. PBMs and insurers said the proposal would weaken their ability to negotiate lower costs for patients, while big pharma said it would benefit patients.
Drugmakers pay out more than $100 billion in rebates annually. Rebates are a big business for PBMs such as the Cigna-owned Express Scripts, CVS Health’s Caremark business, and the UnitedHealth Group-owned OptumRx.
Health and Human Services Secretary Alex Azar sparred with others in the Trump administration over the effectiveness of the strategy, according to Politico. Azar argued addressing rebates was necessary to decrease drug prices, but the domestic policy chief Joe Grogan deemed the plan too expensive, expected to cost about $180 billion over a decade.
“Based on careful analysis and thorough consideration, the president has decided to withdraw the rebate rule,” the White House spokesman Judd Deere told Business Insider in a statement Thursday. “The Trump administration is encouraged by continuing bipartisan conversations about legislation to reduce outrageous drug costs imposed on the American people, and President Trump will consider using any and all tools to ensure that prescription drug costs will continue to decline.”
Other PBMs and companies involved in the pharmaceutical supply chain climbed following the news. Here’s a roundup of the biggest movers, all of which were among the biggest gainers in the benchmark S&P 500:
- Cigna: +14%
- CVS Health: +7.3%
- Humana: +5.4%
- UnitedHealth Group: +4.4%
- Anthem: +3.8%
- AmerisourceBergen: +3.7%
- Centene: +3.5%
- McKesson: +3.4%
- Molina Healthcare: +3.4%
- Cardinal Health: +2.9%
- WellCare Health Plans: +2.5%
- Walgreens Boots Alliance: +2.3%