The White House hopes its latest drug-pricing proposal will shake up the commercial insurance market. But with congressional action unlikely, getting states on board with scrapping rebates to so-called “middlemen” and instead passing those discounts directly to patients may be the administration's best bet.
The administration’s proposed rule aims at ending rebates that drug manufacturers pay to plan sponsors in Medicare Part D, Medicaid managed-care organizations, and pharmacy benefit managers that contract with them. The concern is that the system incentivizes drug makers to increase the list price and negotiate larger rebates with pharmacy benefit managers, while beneficiaries have to pay a coinsurance or meet a deductible based on the higher list price.
The proposal would nix the safe harbor under the Anti-Kickback Statute for these rebates and instead create a new protection for prescription-drug discounts that are passed directly to patients.
The Health and Human Services Department’s scope, however, is limited to federal programs. HHS Secretary Alex Azar called on Congress to address the practice in plans outside of federally run programs like Medicare.
“Congress has an opportunity to follow through on their calls for transparency, too, by passing our proposal into law immediately and extending it into the commercial drug market,” Azar said in a speech at the Bipartisan Policy Center the morning after the proposal came out.
House Democrats have made it clear they’re not thrilled with the plan. “The Trump administration’s rebate proposal will increase government spending by nearly $200 billion and the majority of Medicare beneficiaries will see their premiums and total out-of-pocket costs increase if this proposal is finalized,” Energy and Commerce Committee Chairman Frank Pallone and Ways and Means Committee Chairman Richard Neal said in a statement.
Congressional action, however, is not the only way the proposal can start trickling into the commercial market space, as experts suggest states could adopt the federal government’s proposed prohibition on rebates to pharmacy benefit managers in the private market.
The administration’s move comes at a time when states have been increasingly active in addressing high drug costs, including passing proposals to boost transparency.
Azar said there are about 30 states that have included in their regulations of commercial plans federal prohibitions under the Anti-Kickback Statute. “We believe it will lead to a comprehensive reshaping of the drug-pricing system in the United States, from a backdoor non-transparent rebate system to pharmacy benefit managers to upfront discount payments to the patient at the point of sale,” Azar said in a briefing with reporters last week.
Dan Mendelson, founder of Avalere Health, said he expects some states will change their requirements to mirror HHS's elimination of anti-kickback safe harbors for rebates.
“I think you will see some states picking it up because they will like the transparency aspects and like the fact that it would translate into lower list prices,” he said.
But some states may be hesitant to place such requirements on insurers right away.
“Most states tend to adopt fairly uniform laws across states so they are able to encourage these large national corporations to participate in their market,” said Sean Dickson, officer of the Drug Spending Research Initiative at The Pew Charitable Trusts. “If one state has particularly onerous requirements on insurance companies, those insurers may not participate. That may limit states’ willingness to go really far out to implement this immediately.”
Dickson added that not all states would have to go through their legislatures to enact such a change. “It would depend on the state, though for states that closely follow the federal standard, they likely could similarly modify it by regulation,” he said.
States in the last few years have been moving forward with attempts to address the issue of skyrocketing drug prices, including proposals aimed at pharmacy benefit managers and the rebates supplied by drug manufacturers.
But scrapping rebates as the administration proposes could come with drawbacks. The Centers for Medicare and Medicaid Services’ Office of the Actuary estimated that Medicare Part D beneficiaries would experience a 25 percent increase between 2020 and 2029.
Dickson said those premium increases would also occur in the commercial market should states adopt this measure. “You may get pushback from employers, [who would have to shoulder that premium increase]. That might make states less willing to take up this proposal,” he said.
Experts told National Journal, however, that beneficiaries with high drug costs would benefit from the policy. Paul Ginsburg, director of the USC-Brookings Schaeffer Initiative for Health Policy, said beneficiaries' coinsurance or the deductibles they have to meet are usually pegged to the higher list price of the drug, not the rebated price provided to pharmacy benefit managers.
“The most clear-cut thing is a gain for Medicare beneficiaries who use expensive drugs,” Ginsburg said “Now, Medicare beneficiaries who don’t use expensive drugs—they’ll lose some because the rebates used to go to lowering their premium, so their premium will go up. And since they’re not using expensive drugs, they won’t save a lot of money at the counter.”