Zombies and the Regulatory State

Eakinomics: Zombies and the Regulatory State Zombies and the Regulatory State is a play in three acts based on the seminal non-fiction work of Daniel Bosch. ACT I: Birth and the Struggle for Life In February 2019, the administration proposed a rule, commonly called the rebate rule, to reform how drug manufacturer rebates may be used in the Medicare Part D and Medicaid Managed Care programs. The proposed rule would require manufacturer rebates be provided at the point of sale, allowing patients to benefit directly from the rebate. At present, rebates are issued to insurers (or prescription benefit managers on behalf of insurers) rather than the patients directly, often resulting in patients paying coinsurance based on the list price of a drug. This proposal would allow patients to pay their coinsurance based on the net price after the rebate. The idea was to protect beneficiaries from very large out-of-pocket costs for drugs with very high list prices, but also very substantial rebates. A vigorous debate ensued as to how the rebate rule would affect the drug market and Part D. AAF research indicated:   “This rule will result in some degree of increased premiums for everyone, but notable out-of-pocket cost savings for some; While around only 30 percent of beneficiaries will likely see net savings, their savings are expected to be so large that the overall beneficiary impact will be a net savings; and Cost estimates for the federal government range from savings of $99.6 billion over 10 years to costing the government $196 billion over the same period.”  The idea that premiums might rise even a little, and that the taxpayer bill could go up, was especially problematic. ACT II: Deaths In July 2019, the rebate rule died. At the conclusion of the public comment period the administration announced in a statement that “the President has decided to withdraw the rebate rule.” According to Bosch, “Typically, when a rule is withdrawn, the agency that proposed it will publish a notice in the Federal Register. This constitutes a final agency action, which means if the agency intends to move forward with a similar rule in the future it needs to re-start the rulemaking process.” Then suddenly, the rebate rule had a hold on life: The Department of Health and Human Services (HHS) never published a withdrawal notice in the Federal Register. One suspects, however, that affected stakeholders believed the statement that the rule had been withdrawn. Indeed, any hope of life was again snuffed out when the rule “was listed under Completed Actions as withdrawn in the Fall 2019 Unified Agenda of Regulatory and Deregulatory Actions.” ACT III: A Zombie Rises On July 29, President Trump included among a group of executive orders (EOs) focused on health care one entitled “Lowering Prices for Patients by Eliminating Kickbacks to Middlemen.” It directed the Secretary of HHS to “complete the rulemaking process he commenced.” It’s baaaaack!! But what does this zombie rebate rule look like? According to Bosch, “In light of last month’s EO, and in particular the phrasing ‘complete the rulemaking process,’ HHS appears to have two options for how to proceed. The first option would be simply to proceed as though its proposed rule and the subsequent public comment period satisfies the notice and comment requirement of the Administrative Procedure Act (APA). This option would allow HHS to issue a final rule without any further comment opportunity. In order to ensure this move would satisfy APA requirements, HHS would just have to demonstrate in the final rule that it considered the comments stemming from the February 2019 proposed rule. Indeed, a former Trump Administration HHS official recently wrote that this option is likely. The second option is to issue a new proposed rule (or a supplemental proposed rule) and open a new comment period. Once that comment period is over, HHS could then issue a final rule.” Epilogue Nothing good comes from this. Most believe that the administration will simply proceed to issuing a final rule. This would have three negative implications. The first is the simple uncertainty that is introduced when you can’t tell if a rule is dead, mostly dead, or really dead. The second is that the conditions may have changed since the rule was originally announced; the public has a right to comment on the desirability of the rule at the present. Finally, as Bosch notes, it sets a bad precedent: “It would...be the first time that a previously proposed economically significant rule has been withdrawn from the Unified Agenda only to be finalized in the same form. AAF analyzed the 181 economically significant actions that were withdrawn from Unified Agenda, according to Office of Information and Regulatory Affairs’ data. None was eventually finalized without a new proposed rule and opportunity for public comment.”