Proposed new rule could reshape how prescription drugs are priced and sold

A new mystery unfolding in Washington doesn’t sound good for drug supply-chain investors.

The Department of Health and Human Services sent the White House Office of Management and Budget a new proposed regulation Wednesday evening that could reshape how prescription drugs are priced and sold.

The rule’s language isn’t available to the public until OMB completes its review, but there are hints of what could be in store. The publicly available title of the rule is “Removal Of Safe Harbor Protection for Rebates to Plans or PBMs Involving Prescription Pharmaceuticals and Creation of New Safe Harbor Protection.”

That title suggests trouble for pharmacy-benefit managers such as CVS Health CVS -2.05% andExpress Scripts Holding ,ESRX -1.81% according to pharmaceutical-industry lobbyist Barrett Thornhill of McManus Group. The current safe harbor that exempts discounts from antikickback statutes “is the soft-underbelly of the PBM alligator. This proposal seemingly guts it. If not replaced with some other scheme, their current business model evaporates and they become what they were—low-margin claims processors,” he wrote in an email. Both Express Scripts and CVS sold off in Thursday morning trading, while UnitedHealth Group , which operates a large PBM, was down about 1%.

Whether rebates to health-plan sponsors save money on prescription drugs is hotly contested. The Pharmaceutical Care Management Association, which represents pharmacy benefit managers in Washington, warned earlier this week that “it would make no sense to undermine plans’ ability to negotiate rebates or other price concessions from drug makers. That would raise costs while offering no corresponding benefit to either consumers or taxpayers.”

Food and Drug Administration Commissioner Scott Gottlieb disagrees.

“One of the dynamics that’s driving higher and higher list prices is the system of rebates between payers and manufacturers,” he said in a May speech. Re-examining the safe harbor “could help restore some semblance of reality to the relationship between list and negotiated prices, and thereby boost affordability and competition.”

Investors haven’t taken the Trump Administration’s drug-pricing plan seriously. Those who continue to call its bluff might be making a costly mistake.

Write to Charley Grant at charles.grant@wsj.com

By Charley Grant

July 19, 2018 12:03 p.m. ET