HHS Takes Aim at Rebates, But Will Lower Drug Costs Follow?

As part of its attempt to lower drug costs and increase transparency, the US Department of Health and Human Services (HHS) announced a proposed rule on January 31, 2019, to overhaul the current prescription drug rebate system in Medicare Part D. The rule would end “safe harbor” protection under the Anti-Kickback Statute for rebates paid by pharmaceutical manufacturers to pharmacy benefit managers (PBMs) after the point of sale of a prescription drug and create a new protection for discounts given at the point of sale. The rule would also create a new safe harbor protection for fixed fees paid to PBMs.

“Right now, manufacturers can’t give discounts to patients,” said Ted Okon, executive director of the Community Oncology Alliance (COA). According to Okon, the rule is trying to take these after-point-of-sale rebates away that artificially inflate drug prices and give patients the benefit of any discounts by making them legal.

Medicare Part D beneficiaries’ out-of-pocket costs for prescription drugs are calculated off the drug’s list price at the point of sale, not the lower net price, after rebates from the pharmaceutical manufacturer have been applied. As noted in the proposed rule, about a quarter of a drug’s list price is made up of rebates and “nearly” every drug company that announced a price increase in January 2019 claimed that “all or nearly all” of the increased cost was going toward rebates paid to PBMs or insurers.

“There is a belief that not only [are rebates] harming beneficiaries, it’s costing the Medicare program more,” explained Okon.

The proposed rule claims that by ending rebates and allowing discounts at the point of sale, Medicare beneficiaries’ would have lower out-of-pocket costs for Part D drugs, but whether such cost-savings would happen is unclear given the complexity of the system and other proposed changes to Medicare being considered.

“We have more questions than answers right now,” summed up Blair Burnett, senior policy analyst at the Association of Community Cancer Centers (ACCC) who noted that ACCC is still assessing the proposed rule before releasing a statement. She explained that this proposal is running concurrently to many other changes to the Medicare Part D benefit. For instance, HHS has proposed shifting certain drugs from coverage under the Part B benefit to Part D, and the Centers for Medicare and Medicaid Services (CMS) recently proposed in November allowing step therapy in Medicare Advantage plans for Part B drugs as way to manage utilization. She said it’s a question of when all the pieces fit together, will patients see that benefit that’s being proposed.

“Obviously, from our perspective, we certainly hope that [patients] do,” she said, “but the CMS actuarial analysis did cite potential significant changes to a Medicare beneficiary’s premium, and we wouldn’t want to see a lower[ing] in drug prices come at the cost of an exorbitant increase in premiums.”

Okon agreed that the proposed rule would not occur “in a vacuum” and offered a different perspective, saying the drug distribution and payment system has too many middlemen in it and that there’s not one solution. His belief is that this proposal will be a solution. “You have no idea other than taking the plan sponsor’s word for it that [having rebates] actually help bring down premiums,” he said.

Okon also said that the proposed changes will put insurers “on the hook” for explaining why they raise premiums so much, and that pharmaceutical manufacturers will now be “exposed” if drug prices don’t come down after the Medicare rebates go away. “We can’t say it’s a magic bullet, but we think it’s a good first step,” he said.

At the latest Senate committee hearing on drug prices on February 26, 2019, Senator Chuck Grassley asked the panel of seven pharmaceutical company executives, if the rule is finalized, would they commit to lowering drug prices? The executives expressed support for the rule, but whether lower list prices would follow seemed contingent on eliminating rebates from commercial plans, in addition to Medicare.

“If the rebates were removed from the commercial sector as well, we would definitely reduce our list prices,” said Pascal Soriot, executive director and chief executive officer of AstraZeneca.

The executives also cautioned that they would need to see the rule in its final form. Jennifer Taubert, Executive Vice President and Worldwide Chairman at Janssen Pharmaceuticals Johnson & Johnson, explained that she is supportive, if “there aren’t additional fees that are added into the system to compensate for the rebates given.”

The comment period for the proposed rule is open and ends April 8, 2019. If the proposed rule follows the usual timeline, Okon predicts that the final rule would come out within 45 to 60 days, or around June, followed by another comment period. The idea, he said, would be to have the rule completely finalized before plans from insurers are submitted in the fall for the upcoming calendar year. The rule would then take full effect January 1, 2020.

by Christina Bennett, MS

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