(Updated at 6 p.m. ET)
HHS issued a long-awaited proposed rule on Thursday that excludes the rebates drugmakers pay to pharmacy benefit managers on Medicare Part D plans from protections from anti-kickback laws.
The proposed rule also applies to safe harbor protections for Medicaid managed-care organizations.
The agency instead will propose new safe harbor protections to protect certain PBM service fees and another protection for certain price reductions made at the point of sale.
"This proposal has the potential to be the most significant change in how Americans' drugs are priced at the pharmacy counter, ever, and finally ease the burden of the sticker shock that millions of Americans experience every month for the drugs they need," HHS Secretary Alex Azar said in a statement.
Under the proposal, price reductions offered by drugmakers to PBMs, Medicare Part D and managed care plans would not receive safe harbor protection as "discounts." This would mean that such rebates could be subject to prosecution under the Anti-Kickback Statute if the rule is finalized.
HHS has been railing on drug rebates since May, when the Trump administration unveiled its drug pricing blueprint. The agency has said that the rebates to PBMs and plans do not get transferred to the patient.
PBMs and Part D plans can score higher rebates when a drug's list price rises, since they're generally a percentage of that price, the administration argues. Rather than protect those rebates with a safe harbor protection, HHS wants to offer an exception for price reductions given to patients at the pharmacy counter.
Another proposed safe harbor would protect a flat service fee paid to PBMs by manufacturers for services they provide such as medical education, data monitoring or data management.
Currently the fees are often calculated into the list price of a drug product, and that could "function as a disguised kickback," the proposed rule said.
HHS added that the terms of PBM agreements with drugmakers should be "transparent to health plans. Health plans may be better able to identify and protect themselves from conflicts of interest if they know with some specificity the fees manufacturers are paying PBMs and the services PBMs are rendering manufacturers."
The Pharmaceutical Research and Manufacturers of America, the industry's top lobbying group, immediately praised the rule for focusing on patients.
"We need to ensure that the $150 billion in negotiated rebates and discounts are used to lower costs for patients at the pharmacy," said Stephen Ubl, president and CEO of PhRMA.
However, the Pharmaceutical Care Management Association, the main PBM lobbying group, blasted eliminating the safe harbor protection for rebates.
The move would "increase drug costs and force Medicare beneficiaries to pay higher premiums and out-of-pocket expenses, unless there is a viable alternative for PBMs to negotiate on behalf of beneficiaries," the group said in a statement.
The proposed rule projects that if the rule leads to lower prices then it could raise Medicare premiums by three dollars a month. But any increase in premiums would be more than offset by the lower drug prices, according to a senior administration official on a Thursday call with reporters.
HHS will accept comments on the proposal for the next 60 days. Once the proposed rule is finalized, then industry will have 60 days to implement it.
Correction: An earlier version of this story mentioned Medicare managed-care organizations rather than Medicaid. This error has been corrected.