A Closer Look at Executive Order 13939: Lowering Prices for Patients by Eliminating Kickbacks to Middlemen

Krista Maier, JDHealthcare Policy

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Quick Summary:

  • Requires HHS to finalize the proposed rebate rule that was released in February 2019;
  • Before finalizing, the Secretary of HHS must confirm that the rule changes would not increase federal spending or Medicare beneficiary costs.

Deeper Dive:

This Executive Order (EO 13939) declares that the policy of the United States is that “discounts offered on prescription drugs should be passed on to patients.” The Order requires the Secretary of HHS to finalize the February 2019 proposed rule modifying the treatment of rebates in Medicare Part D and Medicaid managed care plans. However, in order to move forward, the Secretary must confirm that this change is not expected to increase federal spending, Medicare beneficiary premiums or beneficiary out-of-pocket costs.

The February 2019 proposed rule modifies the safe harbors/exceptions from the federal anti-kickback statute. Currently, under that statute, discounts obtained from providers are not considered a kickback when the discount is “properly disclosed and appropriately reflected in the costs claimed or charges made.” Federal guidance released in 2003 notes that to qualify for the discount safe harbor, the discount must be in the form of a reduction in price.

The discussion section of the February 2019 proposed rule says that “[r]ebates paid by drug manufacturers to or through PBMs to buy formulary position are not reductions in price.” Therefore, the Administration proposed modification of the discount safe harbor to exclude from the definition of “discount” the price reductions a drug manufacturer provides to a Medicare Part D or Medicaid managed care plan (or a PBM working on their behalf), unless that reduction or rebate is required by law.

In addition, the February 2019 proposed rule creates a new safe harbor for point-of-sale discounts provided by manufacturers. These discounts can be in the form of a rebate so long as the reduced price:

  • is provided by the manufacturer—directly or indirectly—to the dispensing pharmacy through a chargeback, and
  • is applied to the price charged to the beneficiary at the point-of-sale

The proposed rule includes another allowance for service fees paid from a manufacturer to a PBM, so long as:

  • those fees are not based on volume or value of business between the two (or the PBM’s plans) and
  • the PBM provides to each health plan annual notice of the services it provides to manufacturers and the fees it receives for those services


Because implementation is contingent upon confirmation that the policy change will not result in higher premiums, it is not clear how this Executive Order can be instituted. To assess its impact on Medicare Part D costs, the Administration ran multiple actuarial scenarios. Results from those estimated decreases in Medicare Part D enrollee out-of-pocket spending. However, each scenario also projected an increase in non-Low-Income-Subsidy Medicare Part D plan premiums of 8% to 22% for the 2020 plan year.

In that portion of the proposed rule discussion, the Administration noted that it is difficult to determine the impact of the proposed changes since it hinges greatly on how supply chain entities respond. It is possible the Administration could utilize information received either during the formal public comment period or through direct discussions with impacted entities to run its actuarial scenarios again, perhaps with a different result related to premiums. It is also possible the Administration modifies the proposed rule based on the feedback resulting in a different impact on premiums.

Unless the Administration makes significant changes to the proposed rule, implementation will require fundamental changes in the payment mechanisms for the Medicare Part D and Medicaid managed care lines of business. Typical rebate/payment arrangements between PBMs and manufacturers would significantly change. At a minimum, manufacturers, plans and PBMs will need to modify their payment mechanisms to ensure discounts flow to patients and pharmacies, and adapt any service fee calculations to eliminate volume/sales as a component.


The Administration formally withdrew the February 2019 proposed rule in July 2019, indicating it was not moving forward with the proposal. To date, there have not been any similar proposals submitted to the Office of Management and Budget for review—which is required before major regulatory actions can move forward. Because this Executive Order makes implementation contingent on not increasing beneficiary premiums and the original proposal would have resulted in higher premiums, it is not likely the Administration will move its proposal forward.

Nevertheless, given the nature of government and the recent (and continued) focus on drug pricing and healthcare spending, it would not be a surprise if some form of a proposal to address lower prices for patients does not surface again. Planning ahead would not be for naught. Contact Viking Healthcare Solutions for help with your strategic planning.

Viking Healthcare Solutions has established itself as the premier provider of corporate account services and strategic planning support for the pharmaceutical and biotech industries. VHS Insights, our research division, specializing in payer profiling, market research and analytics, can help you find answers to inform your payer strategy. We support traditional and rare/specialty organizations to create, maintain, defend, and protect access to your product throughout its lifecycle. Bank on our experience to help you achieve successful product commercialization. Contact us at http://www.vikinghcs.com/connect.