PBM rebate solutions flawed, study says

April 16, 2019

A Commonwealth Fund study has revealing findings about PBMs’ use of rebates and impact on drug prices.

While PBMs’ use of rebates has contributed to high drug prices in some cases, the proposed solutions for rebates will not reduce overall drug spending, a new study said.

In the Commonwealth Fund study, researchers examined the current solutions to the rebate controversy, including passing rebates through to payers or patients.

Congress and the Trump administration have been grappling with whether to reform or eliminate the practice of rebates, wrote Elizabeth Seeley, PhD, adjunct lecturer on health policy and management at Harvard’s T.H. Chan School of Public Health, and Aaron S. Kesselheim, MD,  a faculty member in the Division of Pharmacoepidemiology and Pharmacoeconomics at Brigham and Women’s Hospital.

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One suggested solution is requiring PBMs to pass through at least 90% of their rebate savings to all payers, including small health plans and employers. “This would be consistent with what the PBM industry claims is current practice,” the authors wrote.

However, enforcing a pass-through law could be challenging. “Federal legislation mandating minimum rebate levels be passed through could require public disclosure of rebate levels. This could result in manufacturers offering lower rebates or could discourage manufacturers from granting rebates in the first place,” they wrote.

Rebate reform could also be linked directly to patients’ out-of-pocket costs. In 2018, UnitedHealthcare launched a plan to pass rebates along to 14% of its customers (in certain employer-sponsored health plans) at the point of sale, saving patients anywhere from a few dollars to hundreds per month.

“The federal government has also expressed interest in this idea, proposing to tie Medicare Part D beneficiary cost-sharing to rebate levels. Early in 2018, the Trump administration proposed to require Part D plans to pass on at least one-third of the total rebates and price concessions to patients at the point of sale,” Seeley and Kesselheim wrote.

While tying patients’ cost-sharing to rebates may improve transparency and in the short-term reduce out-of-pocket costs, the change would also result in higher overall drug spending from reduced savings passed on from PBMs to health plans and ultimately higher health plan premiums, they wrote. In fact, the Congressional Budget Office has estimated a budget increase of $43.4 billion over 10 years to cover the additional premium increases for Part D plans as a result of this reform.

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Another suggested reform that may be growing in popularity is requiring that the rebate be completely passed through to payers, which would not allow the PBM to retain any of the savings, the authors wrote. This would make PBMs more dependent on generating revenue in other ways, such as administrative fees for managing pharmacy benefits and margins made from their mail order and specialty drug businesses, they added.

“However, such moves could also reduce the incentives PBMs have to negotiate high rebates, as they will not directly reap the benefits,” Seeley and Kesselheim wrote.

The current solutions will not on their own reduce overall pharmaceutical spending without other policies that drive toward value, the authors wrote.

“We do not advocate a specific alternative system in this study, as solutions each come with their own list of advantages and challenges, and would warrant much more consideration than we could go into in the issue brief,” Seeley told FormularyWatch. “However, to improve the value of pharmaceutical reimbursement, all solutions would likely need to involve a systematic approach that includes tying reimbursement to the comparative effectiveness of new drugs.”

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