Of all the health care regulations coming out of the current administration, the recent drug rebate proposal presents a new opportunity to significantly lower out-of-pocket prescription drug costs for Medicare patients. But like most things in health care, there is more complexity to the administration’s proposed changes to pharmaceutical company rebates than initially meets the eye.
The administration’s objectives for the rule change are spot on: 1) to reduce the out-of-pocket costs patients pay for expensive prescription medications, thereby improving access and affordability; and 2) to lower the price Medicare pays for prescription drugs, especially for brand-name products. Accomplishing these objectives will require careful analysis, pragmatic thinking and the support of all key stakeholders.
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The proposed regulation eliminates the long-standing practice of pharmaceutical companies paying rebates to pharmacy benefit managers. Instead, it emphatically recommends that any savings from negotiated drug manufacturer discounts should be used to directly benefit patients by lowering their costs at the pharmacy counter.
Given the billions of dollars in rebates paid annually to PBMs, this change has the potential to significantly lower out-of-pocket drug costs for millions of Medicare beneficiaries. This approach would benefit the sickest and most financially vulnerable among us, including people being treated for cancer, hepatitis C, multiple sclerosis, rheumatoid arthritis and other serious illnesses.
A recent Kaiser Family Foundation report found that Medicare patients using drugs to treat the aforementioned conditions face thousands of dollars in out-of-pocket costs — often exceeding $8,100 annually per drug. This finding is particularly troubling in light of the Federal Reserve’s 2017 report on the economic well-being of U.S. households that found that, if faced with an unexpected expense of $400, four in 10 adults either would be unable to cover it or would cover it by selling something or borrowing money.
Clearly, there is considerable urgency to implement policies that provide patients with relief from out-of-pocket costs for their critical medications. Anything short of this will not meaningfully address the biggest challenge facing many seriously ill Americans at the pharmacy counter.
In order to accomplish its objectives, the administration will need to gain the support of patient advocates, pharmaceutical companies, health plans and pharmacy benefit managers. Doing so will require realigning incentives so that each stakeholder works toward the benefit of the millions of Americans who face insurmountable out-of-pocket costs for their prescription medications. This won’t be an easy task, but it is necessary.
As the rule is currently written, there could be some clear winners. In particular, if lower net prices result in significant savings for patients taking expensive specialty medications, then the Medicare program and its beneficiaries both will benefit.
However, scenarios exist where this might not be the case, and greater clarity is needed regarding how the cost savings from the proposed point-of-sale discounts will be allocated. For instance, simply using point-of-sale discounts to reduce list prices without changing the Medicare Part D cost-sharing requirements would do little to improve access and affordability for the sickest patients taking expensive specialty medications. Out-of-pocket costs would come down, but they would still be unaffordable for many patients.
Instead, the administration should consider using the first dollars from any point-of-sale discounts to offset some or all of the patient’s out-of-pocket drug costs. Although the amounts paid by patients are quite significant from their perspective, they often tend to be a small percentage of the total drug acquisition cost.
The savings that remain after reducing the patient’s costs would be shared by other stakeholders based upon how much risk each assumes and their contribution to achieving the proposed rule’s two objectives. This patient-centric approach would likely make expensive specialty medications more affordable for seriously ill Medicare beneficiaries.
It is time for practical strategies that help Americans obtain their essential medications at a price both they and the taxpayer can afford. The administration’s proposal has much to recommend but will be most likely to succeed if all the key stakeholders see some upside.
As the details of the proposed rule are debated in the coming months, hopefully, all of those concerned will remember that the path forward must put patients first.
A. Mark Fendrick, MD, is the director of the Center for Value-Based Insurance Design at the University of Michigan and a professor of internal medicine and health management and policy.
Dan Klein is president and CEO of the Patient Access Network Foundation.
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