6:06 PM
Feb 08, 2019
 |  BioCentury  |  Politics, Policy & Law

Killing Part D rebates

How scrapping Part D PBM rebates will help Trump, patients and pharma

HHS’s proposal to scrap the secret rebates drug manufacturers pay PBMs and health plans in Medicare Part D would help President Donald Trump fulfill promises to reduce drug prices. It would also reduce financial burdens on senior citizens who incur the highest costs at pharmacy counters, and remove perverse incentives for Part D plans to steer patients to the most expensive drugs.

Although HHS Secretary Alex Azar is presenting the proposal as an attack on the drug industry, unlike many drug price proposals announced by the Trump administration and under consideration in Congress, biopharma companies are delighted by the rebate proposal (see Sidebar: “Popping Corks”).

That’s because while eliminating Part D PBM rebates will lead to lower list prices for some drugs, it isn’t likely to reduce the net prices manufacturers actually receive for most drugs, and it could even make net increases possible for some drugs.

The policy change would also boost revenues for biopharma companies by reducing their obligations to provide discounts in the Part D coverage gap.

The collateral upside for the industry is that visible and dramatic list price reductions could improve its standing among politicians and the public.

Eliminating rebates isn’t a zero-sum game, but it would create some losers.

These include companies in competitive spaces that have jacked up list prices and given PBMs large rebates to negotiate favorable formulary status to grab marketshare from less expensive therapeutic alternatives such as biosimilars.

“Large rebates on expensive drugs are used by middlemen not just to pad their profits, but to push down premiums.”

Alex Azar, HHS

PBMs would be hit hard. They would no longer be able to siphon profits from rebate pools, and would lose one of their most potent tools for reducing their clients’ costs.

CMS acknowledges that it can’t predict every way the proposed rule would ripple through the Part D marketplace, and that it is likely to cause some pain.

Among the negatives could be higher premiums for all Part D beneficiaries, since a large portion of PBM rebates are allocated for subsidizing premiums, Azar said last week in a briefing for reporters.

In response to loss of rebate revenue, Part D plans could reduce costs by tightening formularies, which would decrease access to drugs.

The proposed rule has been written as if it will go into effect in January 2020, a goal that would cheer political strategists working on campaigns for Trump and congressional Republicans.

Given the complexity and possibility of legal challenges, however, there’s a good chance that implementation will be pushed back to 2021.

Sidebar: Popping corks

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