Congress is awash in a flood of new and reintroduced bills aimed at taming prescription drug prices in the U.S., but none of them follows in the wake of the administration's proposal to remove the safe harbor for the current rebate system.
The Pharmaceutical Care Management Association (PCMA), the industry group for pharmacy benefit managers (PBMs), this week urged congressional leaders to stay that course and enlisted their support in stopping the Department of Health and Human Services (HHS) from finalizing a proposed rule that would make the rebates drug companies pay to PBMs for formulary placement subject to anti-kickback penalties.
"HHS is moving forward with this proposal on an unprecedented and unrealistic timeline," PCMA President and CEO J. C. Scott wrote in a letter to the Republican and Democratic leaders of the House and Senate. "We ask you to urge HHS not to finalize the proposed rule and to oppose legislation that would broaden its scope."
The rule, unveiled a few weeks ago, would expressly exclude drug rebates paid to Medicare Part D plans and Medicaid managed care organizations from the safe harbor protection under the anti-kickback statute. In their place, it would create a new safe harbor for prescription drug discounts offered directly to patients and fixed-fee service arrangements between drug manufacturers and PBMs.
Besides making drugs more affordable by ensuring discounts are passed on to patients, the rule is intended to create a new level of transparency by ending an era of backdoor deals that have shrouded drug pricing in secrecy for decades, according to HHS.
That's not how the PBMs see it. Calling the rebates a "key tool" that PBMs use to drive savings for patients, Scott said the administration's proposal could "undermine the Part D program at a significant cost to taxpayers."
"By eliminating this cost-saving tool and not replacing it with a viable alternative to allow continued negotiation, the administration's proposal risks substantially increasing premiums for Medicare beneficiaries," he added.
Citing a Medicare actuary estimate, Scott said the rule could cost taxpayers nearly $200 billion and increase premiums for seniors by as much as 25 percent. Since Part D enrollment is voluntary, healthier beneficiaries might drop the coverage or never enroll if faced with higher premiums. A loss in enrollment could destabilize the program, Scott warned.
Passing the buck
That's not the whole story, though. Experts recently testifying before House and Senate committees acknowledged that the rebates paid throughout the drug supply chain create perverse incentives that lead to higher drug prices. But they're not sure how to solve the problem because of the potential for unintended consequences.
Like most government fixes, the administration proposal would merely shift who's paying the bill rather than address the underlying problem of drug pricing, American Enterprise Institute scholar Joseph Antos said last week in his written testimony for the House Ways and Means Committee.
Citing the Medicare actuary, Antos said the proposed rule would increase premiums by $50 billion over the next decade. However, the actuary projected that it would save households $93 billion in lower out-of-pocket (OOP) spending for prescription drugs over the same time period. "On balance, persons with high drug costs would gain, but those with lower needs for medications would pay more for their health coverage," Antos said.
An unintended consequence of the administration's rebate proposal could be further cost inflation, Antos cautioned, as lower OOP could lead to higher prescription drug consumption and, thus, higher total costs to taxpayers and consumers.
That's not to say a rebate solution isn't needed. While "rebates put downward pressure on premiums, they give plans incentives to steer beneficiaries to drugs with the highest rebates," Mark Miller, executive vice president of health care at Arnold Ventures, said in his written testimony for both the House committee and the Senate Finance Committee.
Such incentives lead to higher OOP costs for Part D beneficiaries "and could accelerate the rate at which a beneficiary reaches the catastrophic portion of the benefit, where taxpayers pick up 80 percent of the cost," Miller said.
"If rebates are creating so many perverse incentives, we should closely reexamine their role and determine the best way to restructure the system that benefits both the patient and the taxpayer," he added.
According to the Altarum Institute, PBMs passed on $89 billion in rebates to employers and insurers in 2016 while making $11 billion in profits. Most of those profits would have been shared by the three PBMs that control nearly 80 percent of the U.S. market.
In many cases, PBMs are making more money from drugs than the brand companies, Rita Numerof, president of health care consulting firm Numerof & Associates, told BioWorld. She noted that PBMs don't share the development risks, liability or patent litigation costs that drug companies must finance. They also have no manufacturing, shipping and handling, or marketing costs.
No pass through?
The biggest complaint about rebates is that the savings aren't directly shared with consumers. In his letter, Scott said Medicare requires PBMs to pass on 100 percent of the savings they negotiate from drug manufacturers to plan sponsors.
But the consumer may not see that savings – outside of lowered premiums. As Antos pointed out, consumers who haven't met their annual deductible or who are subject to co-insurance will pay OOP based on the list price of a drug rather than the net price after rebates. And those needing specialty drugs or nonpreferred brands likely will face substantial cost-sharing amounts.
With employer-provided insurance, much of the passed-on rebate goes to the employer and is often used to fund value-added services such as smoking cessation and healthy living programs, Numerof said.
If Congress is serious about taming drug prices, it needs to look at the PBM business model and consider fundamental changes, Numerof said. "The value they create today is really questionable. . . . Rebates are a symptom of the problem we're facing," she added.
Rather than focusing solely on drug prices, Congress also needs to look at the entire health care enterprise. Health care is the only U.S. industry that gets by with charging more and more while adhering to a "this-is-how-we've-always-done-it" model, Numerof said.