Shares of Cigna Corp. and CVS Health Corp. jumped Thursday morning after the Trump administration abandoned a push to end rebates in government drug plans.
President Donald Trump has made lowering prescription drug costs a priority and halting rebates was seen as a key part of that effort.
His proposal would have prohibited drug makers from paying rebates to pharmacy benefit managers in government programs such as Medicare. It could have brought significant change to a system that influences tens of billions of dollars of pharmaceutical spending.
“Based on careful analysis and thorough consideration, the president has decided to withdraw the rebate rule,” said Judd Deere, a White House spokesman.
The administration was encouraged by bipartisan discussion on legislation to control drug costs, he said.
Rebates had become a popular target of criticism in Washington after drug companies lobbied aggressively to cast them as the reason for high prices. Pharmacy-benefit managers negotiate drug discounts in the form of rebates, often keeping some of that money for themselves.
Critics say the practice gives drug makers a reason to keep list prices high, distorts incentives for drug plans and leaves consumers paying more out of pocket for prescription drugs.
Cigna, the Bloomfield insurer that bought pharmacy benefits manager Express Scripts last year for $67 billion, was up 12.3 percent in morning trading, to $180.29. CVS, based in Woonsocket, R.I., and the owner of Aetna, was up nearly 6 percent, to $58.33.
“We’re pleased the administration recognized the impact the rebate rule would have on seniors and look forward to continuing to work with all stakeholders on lowering drug costs,” CVS spokesman T.J. Crawford said in an email. “Any solution should start with addressing drug prices.”
Analyst Spencer Perlman of Veda Partners in Bethesda, Md., said in a note that pharmaceutical manufacturers are the “clear losers” with the administration’s move “partly because the sector stood to benefit from the rebate rule and partly because this signals to us that the White House is dead set on targeting drug manufacturers directly in its effort to lower prescription drug prices.”
The Trump administration is “prepared to take on drug manufacturers directly rather than attacking the issue indirectly through pharmacy benefit managers,” he said.
Leerink analyst Ana Gupte said in a note that Trump signaled an executive order on drug pricing within a week, “consistent with his comments on ‘favored nations’ drug pricing for America relative to other developed countries.”
