By Yasmeen Abutaleb

WASHINGTON (Reuters) – U.S. Health and Human Services Secretary Alex Azar said it was within his agency’s power to eliminate rebates on prescription drug purchases, a key element of the Trump administration’s plan to lower prescription medicine costs.

Such rebates are negotiated in the United States by pharmacy benefits managers (PBMs) to lower the cost of medicines for their clients, including large employers and health plans that cover tens of millions of Americans.

Drugmakers say they are under pressure to provide rebates to the few PBMs that dominate the market and that those payers do not pass on enough of those savings to patients – a contention the PBMs dispute. The drugmakers say the rebates force them to raise the price of their therapies over time to preserve their business.

The Trump administration has been receptive to that argument. Azar, in an interview with Reuters on Friday, said rebates created a perverse incentive to continuously raise drug prices.

Azar, a former top executive at drugmaker Eli Lilly Co, is trying to deliver on President Donald Trump’s promises to lower the cost of prescription drugs for Americans, which Trump made a major priority during his 2016 presidential campaign.

The Department of Health and Human Services last month proposed regulations that would scale back protections for rebates that might otherwise be illegal under a federal anti-kickback law.

The PBM industry has challenged that move, saying HHS cannot eliminate rebates on its own and would need Congress to change the federal statute. The ultimate responsibility for high drug prices, those companies say, lies with the manufacturers who set those prices.

Azar contends that the current rebates are a product of previous HHS regulation. “What one has created by regulation, one could address by regulation,” he added.

He did not say when such new regulations, which are being reviewed by the Office of Management and Budget, might take effect. “The question of rebates may very well be fundamental to the issue of how you reverse these constant incentives to higher list prices (for medicines).”

CAMPAIGN ISSUE

The cost of healthcare, and prescription drugs specifically, is expected to be a major campaign issue ahead of November elections, in which Democrats are seeking to take control of the U.S. House of Representatives and Senate from Trump’s Republicans.

In May, Trump unveiled a “blueprint” comprising dozens of proposed policies to give the government greater leverage over drug prices but did not support changes to give the federal government’s Medicare health plan for seniors direct negotiating power with drugmakers. Critics say that has spared the pharmaceutical industry any real challenge to its pricing practices.

Azar defended the administration’s actions, noting that more than a dozen leading drugmakers, including Pfizer Inc, Merck Co and Celgene Corp, had pledged to hold off on further price increases this year.

“They are seeing where this is going, they are seeing that we are ticking off the blueprint items one by one,” Azar said. “We are not dependent on the voluntary action of pharmaceutical companies. We are not counting on their goodwill or their altruism. … They’re just changing because they see that’s the future.”

Critics say the drug price pledges by major drugmakers are largely window dressing.

Since May, HHS has given Medicare Advantage health plans, which are administered by private-sector health insurers, new tools to lower prescription drug costs.

The agency’s Food and Drug Administration has unveiled a plan to boost the use of biosimilars, which are cheaper versions of expensive biotech medicines. Azar has directed the FDA to establish a working group to study how to import drugs safely from other countries if a drugmaker dramatically raises prices.

The actions have already sparked concerns. Last week, a leading group of rheumatologists met with Azar to discuss changes to Medicare Advantage that could force some patients to try a less effective, cheaper medication for a period of time before their health plan would cover a more expensive therapy.

HHS said Azar emphasized the agency’s interest in lowering drug prices but expressed openness to alleviating burdens that could be placed on physicians as a result of the new rule.

Azar said he spoke with Trump every few days, either in person or over the phone and that in every conversation, the president wanted to hear about progress on lowering prescription medicine costs.

“I have never once had a meeting or phone call with the president where we have not talked about drug pricing,” Azar said.

(Reporting by Yasmeen Abutaleb; Editing by Michele Gershberg and Peter Cooney)