PBMs, Part D plans to benefit from withdrawal of drug pricing rebate rule
Start adding items to your reading lists:
Create your account
Save this item to:
This item has been saved to your reading list.
Senior Manager, Health Research Institute, PwC USJuly 19, 2019
Share this on social media
The White House last week announced in a statement to multiplemediaorganizations that it would no longer proceed with a proposed rule that would have considered the use of pharmaceutical rebates to be illegal kickbacks and would have barred their use by sponsors of Medicare Part D plans and by Medicaid managed care organizations.
As proposed, the rule would have prohibited the use of rebates and would have instead created for pharmacy benefit managers (PBMs), insurers and pharmaceutical companies participating in Part D and Medicaid two new safe harbors: the collection of fees meant to pay for the basic services of PBMs, and point-of-sale rebates available directly to consumers at the point of sale.
An analysis done for the administration by the actuarial advisory company Milliman, however, claimed it might save money by prompting changes in formulary design and drug usage. Minimal impact was anticipated to the Medicaid program, the CBO and CMS said.
In general, rebates are paid by a pharmaceutical company to a PBM, which may otherwise withhold access to its formulary if the price for the drug is too high. The rebate is meant to guarantee access to the formulary, and the rebate is either passed on in part or in whole to the insurer that has contracted with the PBM. The point of the rule, regulators said, was to dismantle a pricing system that incentivized the use of high-priced products with large rebates over lower-priced drugs with smaller rebates.
HRI impact analysis
The retraction of the proposed rule is a positive development for pharmacy benefits managers and Part D insurers. The rule was expected to negatively impact revenues associated with rebates. According to the Pew Trusts, 91 percent of rebates were passed on to insurers in 2016. For insurers, that loss of revenue was expected to require increased premiums for all enrollees.
According to the Medicare Payment Advisory Commission (MedPAC), between 2007 and 2017, post-sale rebates and fees increased by an average of 19 percent annually for brand-name drugs, compared to a 10 percent average growth rate for gross spending. However, only 36 percent of brand name drugs have “more than nominal” manufacturer rebates, according to the report. Some of those rebates, MedPAC noted, were used as price protection provisions meant to rebate back price increases in excess of a negotiated threshold.
One positive for the industry may have to do with avoiding operational headaches. If the rule had taken effect in November, as the administration had recently announced, it would have required pharmaceutical companies to renegotiate their pricing contracts with a wide range of stakeholders, including PBMs and wholesalers.