The legal status of drug-plan rebates that the Trump administration has blamed for helping keep prices high would be limited under a proposal U.S. health officials rolled out Thursday.

The proposal comes ahead of President Donald Trump’s State of the Union address scheduled for Tuesday, handing him a potential win on drug pricing to tout. The measure, released by the Department of Health and Human Services, would roll back so-called safe-harbor protections for such rebates, which kept them from running afoul of federal antikickback laws. The plan isn’t final and will be subject to a 60-day period for public comment.

Shares in major drug-plan providers fell. CVS Health Corp., which recently acquired insurer Aetna Inc., was down 2.9 per cent in late trading in New York, and Cigna Corp., which owns Express Scripts, declined 2.2 per cent.

In a statement, HHS Secretary Alex Azar blasted the rebate system as “a hidden system of kickbacks to middlemen” that increases drug costs for Americans every day.

“This proposal has the potential to be the most significant change in how Americans’ drugs are priced at the pharmacy counter, ever, and finally ease the burden of the sticker shock that millions of Americans experience every month for the drugs they need,” Azar said in a statement.

Under the proposal, safe-harbor protection would be eliminated for rebates drugmakers pay to pharmacy-benefit managers, Medicare Part D plans and Medicaid managed-care organizations. A new safe harbor would be created for rebates on drug discounts offered directly to patients, as well as fixed-fee service arrangements between drugmakers and PBMs. Without safe-harbor protections, rebate money pocketed by PBMs could be considered an illegal kickback.

Under the proposal, premiums for Medicare drug plans could increase anywhere from 8 per cent to 22 per cent while average costs patients pay out of pocket would fall 9 per cent to 14 per cent. The premium increases would be shouldered by all beneficiaries while the cost decreases would be most helpful for those who take the priciest drugs.

Blaming Drugmakers

The Pharmaceutical Care Management Association, an industry group for PBMs, said it was reviewing the proposed rule, saying drugmakers alone were responsible for high list prices.

“We stand ready to work with the administration to achieve our shared goal to reduce high drug costs,” PCMA Chief Executive Officer JC Scott said in a statement.

Drugmakers currently pay rebates to insurers and PBM middlemen in exchange for preferred status with those plans’ customers. Some of those rebates go toward insurance premiums while the middlemen keep some for themselves. The pharmaceutical industry has said PBMs prefer higher-priced drugs so they can negotiate bigger rebates and pocket more of the money.

The Pharmaceutical Research and Manufacturers of America, the main drug industry trade group, applauded the move. The proposal would “fix the misaligned incentives in the system” that now result in insurers and PBMs favoring medicines with high list prices, PhRMA CEO Stephen Ubl said in a statement.