New Medicare Prescription Drug Rebate Rule: Wrong Solution to High Drug Prices

Prescription drug list prices in the United States continue to be a source of frustration for patients and policymakers alike. The administration is pushing forward with new ideas for lower list prices and lower costs for consumers. As the only entity in the prescription drug supply chain whose mission is to lower costs, America’s pharmacy benefit managers support that objective.

Unfortunately, one proposal that the Department of Health and Human Services is pushing would overhaul the prescription drug rebate system for Medicare Part D and Medicaid managed care organizations without addressing the root cause of the problem: high list prices that only the drug manufacturers have the power to set. The result would be significant increased costs for both taxpayers and Medicare beneficiaries.

The administration’s proposal risks substantially increasing premiums for Medicare beneficiaries. HHS’ own independent Medicare actuaries estimate that the rule could cost taxpayers nearly $200 billion and increase premiums for seniors by as much as 25 percent — the largest average premium increase in the history of Part D.

PBMs advocate for consumers and health plan sponsors in the fight to keep prescription drugs accessible and affordable. PBMs use innovative, consumer-friendly, market-based tools that encourage competition among drugmakers and drugstores and incentivize consumers to take the most cost-effective, clinically appropriate medication.

While manufacturers alone set drug prices, once those prices are set, PBMs leverage marketplace competition to negotiate rebates with manufacturers to reduce prescription drug costs for consumers. These savings are used to lower enrollee premiums and to keep down the costs that consumers pay at the pharmacy counter.

There is a reasonable conversation to be had about the use of the savings that PBMs negotiate, and the appropriate balance between applying those savings toward keeping premiums low for all beneficiaries and applying more of those savings to lower costs at the pharmacy counter. Certainly, there are trade-offs.

But what isn’t worth considering is eliminating rebates completely, as HHS has proposed, and removing the ability of PBMs to deliver savings back to taxpayers and beneficiaries. HHS’ new approach relies entirely on the good faith of drug companies to lower list prices without the counter-pressure that is provided by rebate negotiations. Why the department thinks that removing this important check and balance will lead to manufacturers freely reducing price is puzzling.

The evidence showing that rebates reduce drug costs is clear. Data released by the Centers for Medicare and Medicaid Services cited drug manufacturer and pharmacy price concessions as an important factor in driving lower program and patient costs.

Despite these data and the success of the Part D program, HHS is moving to upend the current structure by which pharmacy benefit managers are able to lower costs. It ignores the fact that Part D has cost 45 percent less than initial estimates made when it began. While the drafters of the proposal believe it “may curb list price increases,” no provisions of the proposed rule actually address prescription drug list prices.

Drug manufacturers can already lower their list prices — and choose not to. For example, prices continue to rise in Medicare Part B, a program which does not involve PBM-negotiated rebates. The proposed rule relies entirely on the premise that we can all trust drug companies to lower their list prices. However, that may be in conflict with their duties to shareholders.

There is no question that we have a problem with prescription drug prices in the United States, and reducing prices is a laudable goal that we share with the Trump administration. But this proposed rule is not well thought out and needs to be drastically reworked or withdrawn before the successful and popular Part D program is destabilized.

America’s PBMs are ready to engage in a real conversation and pursue meaningful market-based action to lower drug list prices, costs for consumers and premium levels for all beneficiaries. Let’s come together to have that conversation instead of pursuing politically reactive ideas that will raise premiums and costs for everyone.


JC Scott is president and CEO of the Pharmaceutical Care Management Association.

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