Unraveling how much of a prescription medication price gets swallowed by “middlemen” is at the forefront of Tuesday's drug price hearing within the Senate. One thing bound to come up: rebates.
Both major political parties show interest in remedying high drug prices, and drugmakers have bemoaned how rebates to middlemen have them from reaping every dollar associated with those prices.
Pharmacy giant CVS Health criticized the Trump administration's proposal to end these post-transaction discounts because they apply to Medicare. Yet, in January the organization presented a Medicare drug plan that experts have to say is similar “in spirit” to the administration's proposal.
The CVS Caremark plan wasn't popular with customers, and CVS Health, which owns CVS Caremark, was quick to suggest this out as evidence that consumers like the current rebate system.
“We had a very, I'd say, small number of seniors sign up for that program,” Larry Merlo, CVS Health's CEO said on the February earnings call with investors. “And we think one of the barriers to that particular was the increase that we saw in the monthly premium.”
The CVS plan's premium was $80 a month, which is about double the amount average Medicare Part D monthly charge. Consider it is designed to pass on a portion of rebates directly to patients at the pharmacy counter, certain patients would wind up with smaller out-of-pocket costs than they previously paid.
“Even very well-informed consumers would not necessarily realize that a greater premium plan in this case means that they're incurring smaller amounts at the pos,” said Rachel Sachs, an associate law professor at Washington University in St. Louis who specializes in health care.
So why did only 25,000 people subscribe to the program, called SilverScript Allure? Either consumers didn't want the plan or maybe they just didn't understand it.
We'll break it down for you.
Untangling Jargon: The way in which Situations are And just how They might Change
A pharmacy benefit manager, or PBM, handles drug claims for medical health insurance companies. The large ones are Express Scripts, CVS Caremark and OptumRx. Every time you fill a prescription and use your drug plan, your PBM is involved with paying the claim and determining how much cash you owe the cashier.
A rebate is really a discount the PBM negotiates having a drug manufacturer from the price the drugmaker sets, which is sometimes called a list price. Rebates aren't published, and they typically don't get passed on to the patient in the pharmacy counter by means of a lower copayment, experts say.
When the drugmaker eventually pays the rebate back to the PBM, the PBM often uses this money to reduce premiums, what are fees each month that Medicare Part D plans charge beneficiaries. They differ for every drug plan.
In a means, patients taking drugs rich in list prices and big rebates wind up subsidizing other patients' premiums, said Erin Trish, the associate director of the University of Los angeles Schaeffer Center for Health Policy and Economics. Premiums on average haven't substantially increased in more than a decade, however it may be “unfair” to the patients paying higher prices for drugs in the pharmacy counter.
“Some may argue, 'They're sicker- Maybe they should [pay more],'” Trish said. “Look. We decided everyone ought to pay the same premium in this market. [Rebates] really should not be a roundabout method to create a subset of beneficiaries pay more.”
That could all change within new Trump administration proposal that will ban rebates because they exist today. The negotiated discounts could be applied at the pharmacy counter, meaning discounts could be forwarded to patients as out-of-pocket costs which are calculated based on the discounted price, not the higher list price.
For patients taking drugs rich in list prices and large rebates, like insulin, it could mean noticeable savings, Sachs said. For patients taking drugs without big rebates, like generics or brand-name drugs without other branded competition, they are not prone to see much change at the pharmacy counter.
Everyone, however, will see premiums increase. It's unclear yet just how much, but Trish said the SilverScript Allure plan CVS Caremark is providing isn't necessarily the very best indicator. Consultants hired through the Department of Health and Human Services estimated premiums will go up $3.20 to $5.64 per month if the rule takes effect in 2021. The typical Medicare Part D premium for 2021 was $41.21, based on the Kaiser Family Foundation. (Kaiser Health News is definitely an editorially independent program from the foundation.)
So Why Didn't Patients Want The CVS Caremark Plan?
It's unclear how well seniors shopping for drug plans understood the SilverScript Allure plan, among their several choices. They could view it were built with a high premium, but no deductible. They may not have realized it required smaller payments on drugs in the pharmacy counter.
Research shows that the premium is the most important factor seniors consider when choosing a plan, Sachs said.
On top of that, people are unlikely to leave their current plans even if there's a better one available.
What's more, we don't know how well CVS Caremark marketed the program to seniors who'd benefit. They wouldn't tell us, despite multiple calls and emails.
OptumRx, a competing PBM, started offering customers similar discounts at the pharmacy counter – however for people with commercial insurance, not Medicare or Medicaid. Unlike CVS Caremark, it has a web page with basic language, like “point of sale discounts mean lower costs,” and a connect to request more information about switching. OptumRx did not respond to a request for comment.
PBMs: Helping Or Hurting?
Rebates for individual plans and medicines are confidential, but in Medicare Part D, they've increased on average from 9.6% of total spending in 2007 to 19.9% in 2021, based on annual reports towards the Medicare boards of trustees.
So it's perhaps unsurprising the brand-name drug trade group, the Pharmaceutical Research and Manufacturers of the usa, said hello “applaud[s]” the proposal to overhaul the rebate system. PhRMA says it pushes them to raise prices in order to offer larger rebates, because drugs with larger rebates often get preferential treatment by PBMs.
Still, PBMs provide the benefit of batting down net prices (the price after rebate), and keeping down drug spending overall.
There are multiple estimates on how much the rebate proposal would cost the Centers for Medicare & Medicaid whether it took effect, plus they indicate that unless there are other changes to Medicare Part D, it might likely cost more money than the current system, Sachs said.
“It is startling to see the administration continuing to move forward so rapidly with this particular proposal without a better understanding of how different actors might respond,” she said. Consequently, there's a “huge amount of uncertainty” over how this might all engage in.