HHS Sec. Alex Azar. Photo: Sarah Silbiger/CQ Roll Call

A big part of the Trump administration's plan to lower drug prices is now dead, White House spokesman Judd Deere confirmed to Axios.

Why it matters: The administration is backing away from an effort to change the way money flows through federal health care programs — one of the most sweeping elements of its drug-pricing blueprint. That's bad news for pharma, and the move will put pressure on other parts of the administration's plan, which is also bad news for pharma.

How it works: The now-dead proposal would have overhauled the rebates collected by pharmacy benefit managers — the middlemen between insurance plans and drug companies.

  • They negotiate discounted prices in the form of a rebate, but keep some of those rebates for themselves as profit.
  • Trump's proposal would have banned that arrangement in Medicare and Medicaid, requiring PBMs to pass the rebates on to patients at the pharmacy counter and find a different way to bring in their own revenues.

What they're saying: “Based on careful analysis and thorough consideration, the President has decided to withdraw the rebate rule," Deere said.

  • "The Trump administration is encouraged by continuing bipartisan conversations about legislation to reduce outrageous drug costs imposed on the American people, and President Trump will consider using any and all tools to ensure that prescription drug costs will continue to decline," he added.

Between the lines: This is very bad news for the pharmaceutical industry, which blames middlemen for high drug prices and vocally supported the proposed rebate overhaul. It's very good news for insurers and PBMs.

  • Independent critics of the proposal argued it did nothing to require drugmakers to lower their prices and would've cost taxpayers hundreds of billions of dollars.

What's next: This will increase the pressure for the administration to finalize its other major drug-pricing push — which the pharmaceutical industry loathes.

  • That proposal would set Medicare's prices for certain drugs based on the prices other countries pay. It likely "will be the executive order of choice," a source close to the administration said.
  • The plan is also controversial among Republicans, who are hesitant to set drug prices.

What we're watching: The administration is also open to a controversial proposal being discussed in the Senate that would limit how much drug companies can increase their prices within Medicare's drug benefit.

  • "Driving down outrageous price hikes in prescription drug prices is a priority for the President, and a policy like an inflation cap for Part D drugs is something the Trump administration is seriously considering," a senior administration official said.

Go deeper: The complicated politics of Trump's rebate rule

Go deeper

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