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Drug distributors surge, drug makers tumble after Trump administration reverses stance on rebates

The Trump administration is no longer pursuing a proposal to reform the current system of drug rebates, paving the way for the status quo to remain.

It’s good news for pharmacy benefits managers (PBM) and insurers. Health care companies combining PBMs and insurance led the market higher with Cigna (CI), UnitedHealth Group (UNH) and CVS Health (CVS) surging 8.8%, 5.4% and 4.5%, respectively, on Thursday.

However, it’s not all good news for all insurers. Matt Eyles, president and CEO of America’s Health Insurance Plans, said Thursday the drug companies will continue to maintain high prices as a result.

“Prescription drug prices are out-of-control, and we must work on solutions to reduce the price and cost of prescription drugs for all Americans, including seniors and taxpayers,” Eyles said. “As we all know, drug prices and price increases are set and controlled solely by drug makers. They alone could decide to reduce prices – and can do so today.”

“AHIP joins the Administration and the Congress in their goal of lowering costs and making drugs more affordable and accessible for all Americans,” he added. “We will continue to work with them, and all stakeholders, to find bold solutions that promote greater competition, open and honest drug pricing, and paying for value. By focusing on these solutions, we can lower what patients and consumers pay at the pharmacy counter, in premiums, and in taxes – making health care more affordable and accessible for everyone.”

Drug makers tumble

Drug manufacturers, on the other hand, had their hopes pinned on the proposal being implemented in order to reduce political pressure of drug costs. Merck (MRK), Eli Lilly (LLY) and Pfizer (PFE), among others, saw their stocks drop Thursday.

Big pharma has argued that PBMs hold the key to reducing the price for drugs that consumers pay at the point of sale—at the pharmacy counter—because they are distributing the product to pharmacies.

Merck CEO Kenneth Frazier previously told Congress that in order for pharmaceutical companies to reduce their list prices, they need a fairer relationship with PBMs.

As a result of the administration actions Thursday, pharmaceutical trade group PhRMA said, Medicare beneficiaries will continue to have to pay high costs.

“The Administration’s decision to not move forward on the proposed rule to reform the rebate system in Medicare Part D is a blow to seniors who could have paid less for their medicines at the pharmacy counter,” according to a statement Thursday.

“Of all the policies proposed in Washington right now, this was the only proposal that would provide immediate savings at the pharmacy counter, instead of only saving the government or insurance companies money. It is disappointing that despite support from policymakers on both sides of the aisle and from a wide array of consumer, patient, pharmacist and provider groups that they have decided to backtrack. Our industry remains committed to fighting for patients by advancing policies that will actually lower what they pay out of pocket for their medicines.”

The proposal was a key focus for U.S. Health and Human Services Secretary Alex Azar, who has said that the PBM system encourages back-door dealings and that PBMs do not pass on the savings they receive from drug companies on to consumers.

The drug companies provide rebates to PBMs in exchange for distributing their products. Some have agreed to steeper discounts to ensure greater preference is placed on their brand.

But those savings are not passed on to patients, who pay copays based on the list price of a drug, rather than the actual cost the PBM pays.

The news Thursday comes just days after the administration lost a court battle to force pharmaceuticals to list prescription drug prices on television commercials. Drug companies said the rule would not provide sufficient context to the consumers about the actual out-of-pocket costs.

Anjalee Khemlani is a reporter at Yahoo Finance. Follow her on Twitter: @AnjKhem

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