Although the use of drug rebates has been under discussion for some time, in May, “American Patients First: Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs,” opened the door for renewed debate.
"Today's rebate system is set up in the shadows to serve entrenched interests—drug companies who set these prices so high and the pharmacy benefit managers who receive billions of dollars in rebates without patients ever knowing where the money goes," said HHS Secretary Alex Azar in early February of this year.
The Blueprint points a finger at PBMs and insurers who drive up drug prices by demanding high rebates in exchange for increased utilization. Among its proposals are requiring Part D plans to apply rebates at the point-of-sale (POS) and a rule to withdraw the “safe harbor” protection under anti-kickback laws, eliminating rebates in Medicare that have permitted manufacturers to negotiate with payers for formulary placement.
The Blueprint also says that when prices are higher, PBMs, wholesalers, and plans receive higher rebates with little incentive to lower drug costs.
Related article: Four Ways Trump Plans to Lower Drug Prices
At question, among other issues, are whether PBMs are double dipping by receiving payments from both insurers and drug manufacturers; whether rebates lower drug costs for consumers; and if rebates serve any other purpose than negotiating a position on a formulary by drug companies.
“Manufacturers have chosen to negotiate price concessions with PBMs using rebates, which are paid months after a drug has been dispensed and are used by payers to reduce premiums and out-of-pocket costs for patients,” according to the Pharmaceutical Care Management Association (PCMA). “At this time, rebates are the only usable price concession available.
“As long as manufacturers are reticent to offer up-front discounts, fearing they will violate antitrust law, limiting or eliminating plans’ ability to negotiate price concessions after a drug is dispensed would only come at the expense of patients, who would face higher drug costs,” the organization says.
Joe Paduda, president, CompPharma, LLC, a consumer and payer research organization in Maggie Valley, North Carolina, is not convinced that the administration is really tackling the issue.
“The government cannot negotiate prices with manufacturers, but it is a good faith effort for Congress to try to gain lower prices,” he says. “Competition needs to increase, and the FDA should speed up the development of generics.”
Do consumers benefit from rebates?
On January 31, the Trump administration proposed that health plans and middlemen serving Medicare Part D and Medicaid beneficiaries in managed care plans be required to give consumers the benefit of discounts they receive on prescription drugs. Under this proposal, rebates from manufacturers to PBMs would be considered illegal kickbacks—essentially the end of the safe harbor protection ruling for discounts and rebates paid from manufacturers to PBMs.
In addition, the proposal creates a new safe harbor for prescription drug discounts offered to beneficiaries at POS and for certain fixed fee service arrangements between drug makers and PBMs.
While lowering Medicare beneficiaries’ out-of-pocket (OOP) costs, the rule could generate unintended consequences—increasing premiums from 8% to 22%, according to HHS.
Secretary Azar says rebates might be passed onto consumers, who could potentially realize reductions of 30% or more in their OOP costs for drugs, such as insulin and statins. Sicker beneficiaries with higher drug costs are expected to benefit the most.
The public has 60 days to comment on the proposal. The proposed effective date for the regulation is January 1, 2020.