The Trump administration is making another policy attempt to lower the price of prescription drugs for Medicare beneficiaries. Although this is a problem the administration has attempted to tackle since Trump took office in 2017, the proposal to virtually set a fixed limit on PBM rebates may be the most effective solution to the ever-increasing prescription drug crisis.
Pharmacy benefit managers (PBM) act as middlemen between drugmakers and insurers. When PBMs negotiate the price of an expensive, brand-name prescription drug and guarantee it will be covered by a drug plan, the PBM then receives large amounts of money from the drugmaker in the form of rebates. These PBM rebates are also referred to as kickbacks.
This negotiation allegedly lowers the cost of the brand-name drug and makes it more likely for a consumer to select that drug as opposed to a generic version or one offered by a competitor. However, it’s a controversial aspect of the American prescription drug industry because the amount of the rebates is kept secret and incentivizes drugmakers to keep prices high. This move would shine a light on this aspect of the prescription drug industry and create more transparency for consumers.
This proposal would require PBMs to pass any rebates larger than 30 percent of the drug’s listed price on to consumers at the pharmacy counter, potentially saving them enormous out-of-pocket costs.
Who benefits and who loses?
In theory, this proposal will bring down out-of-pocket drug costs for Medicare beneficiaries who take several or very expensive prescription drugs. However, it would likely raise drug plan premiums for about 70 percent of Medicare beneficiaries by an estimated $5 per month.
Those who would lose the most in this policy change would be PBMs, insurance companies, and Medicare beneficiaries who don’t have chronic conditions and higher drug cots.
This move could also drop drug prices for those covered under private healthcare plans as these insurers often take note and follow Medicare’s lead on major policy changes.
It’s possible that drugmakers could do away with rebates entirely and voluntarily lower the list price of drugs, although that option is unlikely and, if chosen, unpredictable.
Alex Azar, Secretary of Health and Human Services, called the PBM rebates system a “shadowy system.”
“Drug rebates are essential discounts off the list price. Outlawing them would divert $29 billion in rebates now paid to insurers and PBMs into seniors’ pocketbooks at the pharmacy counter,” he said.
Stephen J. Ubl, chief executive of PhRMA, a trade group for drugmakers, said, “This proposal would also fix the misaligned incentives in the system that currently result in insurers and pharmacy benefit managers favoring medicines with high list prices.”
If passed, the plan likely would not go into effect until 2020.