We Still Need Rebate Reform

The withdrawal of the Health and Human Services Department’s rebate rule leaves many unanswered questions for the health care system generally and patients specifically.

Chief among them is how do we ensure that rebates, fees, discounts and other concessions paid by the biopharmaceutical industry to pharmacy benefit managers, insurers and hospitals do not end up as profits for the middlemen, but rather as direct savings for patients? The dollar amount we are talking about is not inconsequential. The latest tally of these concessions in 2018 equaled $166 billion, or approximately 40 percent of gross domestic biopharmaceutical spend.

We already know that the tactic of contracting through rebates drives inappropriate behavior by PBMs and insurers. There are many instances where access to lower-cost generics or biosimilars is blocked because of rebate contracting.

For example, in a study published in the Journal of the American Medical Association last month, researchers investigated the placement of branded drugs in Medicare Prescription Drug Plan formularies when a generic equivalent was available. In the study, researchers found that “72% of Part D formularies had a lower cost-sharing tier and 30% of Part D formularies had fewer utilization controls on branded drugs for at least 1 multisource drug.” In other words, PBMs and insurers preferred costlier alternatives due to higher rebates than lower-priced generic medicines, leaving patients and the health care system to absorb the cost.

Beyond formulary distortions, market dynamics through rebate contracting directly impact patients who have a deductible for their medicines or pay a percentage of the cost (coinsurance) and do not benefit from the prices negotiated on their behalf by their insurer or PBM. The savings gained through rebates, discounts and fees are not passed on to them directly at the point of sale and won’t be unless Congress or state governments act despite the Trump administration’s decision not to.

States such as New York and Maine have taken legislative action this past year to shed light on the flow of money trapped in the supply chain that never directly reaches patients in the form of savings. Most encouraging is the agreement reached by the Connecticut comptroller and CVS Caremark. In the press statement, the Connecticut State Comptroller announced that “his office has reached a contract agreement with CVS Caremark, the state’s pharmacy benefit manager (PBM), that changes the paradigm of how pharmacy benefits are managed and establishes one of the most innovative and transparent pharmacy benefits contracts in the nation.”

However, since states lack jurisdiction over Employee Retirement Income Security Act insurance plans, national PBMs and most importantly Medicare, the problem of patient out-of-pocket exposure will continue for the majority of patients. In addition, Connecticut’s agreement needs to be reached with 49 other states and a multitude of insurers and PBMs to have any meaningful effect.

As policymakers go back to the drawing board to find ways to help patients with their out-of-pocket costs, they should consider three indisputable facts: First, 40 percent of U.S. biopharmaceutical spend ends up in the pockets of PBMs, insurers and hospitals. Second, a small number of patients are exposed to inordinate levels of out-of-pocket costs for their medicines. And finally, unlike other segments of the health care system, patients do not benefit from the prices negotiated on their behalf by their insurers or PBMs. 

The current system is designed to help some, not all. There is still time to share the savings with those who need help the most by making sure the savings realized through rebates are passed on to patients. 


Robert Popovian is the vice president of Pfizer U.S. Government Relations.

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