4:48 PM
Feb 09, 2018
 |  BioCentury  |  Politics, Policy & Law

Money in your pocket

Why the Trump administration wants to put Medicare Part D rebates in patients’ pockets

Under intense pressure from President Donald Trump to take steps that visibly lower the cost of drugs, HHS Secretary Alex Azar is reaching for low-hanging fruit. The administration’s proposed budget, which will be released on Feb. 12, will include a proposal to hand a portion of drug company Medicare Part D rebates to beneficiaries at the pharmacy counter, and to cap Part D out-of-pocket expenses, according to an administration source.

While these policies are not likely to reduce government spending on drugs and could increase premiums, they are politically irresistible because they visibly slash out-of-pocket costs for senior citizens. In addition, they could be put into practice without legislation, a major consideration given the near impossibility of obtaining congressional consensus on drug pricing -- or anything else.

Targeting drug rebates is attractive to the administration because it addresses concerns expressed by drug companies, payers and patients that middlemen are siphoning money out of the distribution chain without adding value.

“The idea of more transparency in the distribution chain has a lot of traction,” former CMS Administrator Mark McClellan told BioCentury.

“This is a feasible, realistic, albeit quite wonky option to take,” Erin Trish, associate director of health policy at the University of Southern California’s Leonard D. Schaeffer Center for Health Policy & Economics, told BioCentury.

“The idea of more transparency in the distribution chain has a lot of traction.”

Mark McClellan, Duke University

McClellan, who is director of the Duke-Margolis Center for Health Policy at Duke University, said redirecting rebates to Medicare patients is a balancing act: “There would be some cost savings for some beneficiaries who are using costly drugs where there are significant rebates. The flip side is those reductions are likely to be offset to some extent by higher premiums.”

Any increase in premiums may be counter-balanced by Medicare provisions in the budget deal Congress enacted on Feb. 9. It shifts tens of billions of dollars in costs from Medicare Part D plans to drug companies. Plans are likely to respond by lowering premiums, McClellan noted (see “Sudden Shift”).

Details of the rebate give-back and out-of-pocket cap are not available, so it is not possible to determine the net impacts on government spending or premiums from the policies.

As with any major change to the healthcare system, there will be winners and losers. Proponents and opponents have prepared detailed analyses that support their positions.

CMS teed up the debate by including in a November 2017 proposed rule a request for information (RFI) about the application of manufacturer rebates and pharmacy price concessions to drug prices at the point of sale (POS).

Drug manufacturers love the idea. It could be implemented in ways that would cost them nothing, and it might boost revenues by reducing manufacturer subsidies for the Part D coverage gap, and by increasing the likelihood that patients start and refill prescriptions.

A report produced by the consulting company Milliman Inc. for PhRMA predicts that transferring half of manufacturer rebates and all of pharmacy rebates to Medicare beneficiaries would result in savings for Medicare beneficiaries and for the government.

These savings would be larger than the increase in Part D premiums that PhRMA and other supporters of the idea acknowledge would be inevitable, according to Milliman.

Patient advocacy groups also support the policy.

PBMs, which...

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