Health and Human Services Secretary Alex Azar and Inspector General Daniel Levinson proposed an approach that could be one of the most sweeping change ever to how prescription drugs are priced. The proposal would eliminate the regulatory safe harbor that allows pharmacy benefit managers to receive cash rebates from pharmaceutical companies, while creating a safe harbor for manufacturers to offer rebates directly to patients.
Under the current system:
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Pharmacy benefit managers (PBMs) help determine which drugs will be covered by an insurance plan and represent insurance companies when negotiating prices for with pharmaceutical manufacturers.
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When a manufacturer offers a rebate to reduce the cost of a prescription drug, that rebate is typically shared between the benefit managers, insurers, and sometimes large employers.
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These rebates are usually negotiated behind closed doors. An estimated $29 Billion per year is paid as rebates to Medicare Part D PBMs and insurers.
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Out-of-pocket patient responsibility, however, is often based on the drug’s list price before rebates are factored in.
Critics of this practice claim that this creates a misguided incentive for manufacturers to artificially inflate prescription drug list prices while providing ever-growing rebates to benefit managers and insurers. Although insurers claim these rebates help reduce premium costs, proponents of the rule change say that under the current system, PBMs and insurers do not always pass these rebate savings on to consumers at the pharmacy checkout or through premium savings.
The proposed rule change would directly impact this negotiation process.
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Beginning January 1, 2020, PBMs and insurers would no longer be able to accept rebates from pharmaceutical companies.
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Instead, these manufacturers would be able to offer discounts directly to patients.
Though the new rule may help reduce out-of-pocket costs for Medicare Part D and Medicaid subscribers, insurers warn that premiums may increase as a result of the lost rebates. To read more about the potential positive and negative results, visit https://khn.org/news/winners-and-losers-under-bold-trump-plan-to-slash-drug-rebate-deals/
The rule changes do not directly impact employer-based or individual private insurance plans. However, states which model their insurance regulations on federal rules may decide, if it is implemented, to adopt this new regulation, which could have an impact on private insurance plans. While it remains to be seen what the final impact might be, we would certainly welcome more transparency in this area and often encourage employers who are large enough to get away from rebate-sharing arrangements in favor of transparent pass-through pharmacy arrangements.
For more information on the proposed regulation, contact your Fall River Client Manager or visit the additional sites below:
https://www.healthaffairs.org/do/10.1377/hblog20190201.545950/full/
