OPINION:
The U.S. Department of Health and Human Services just proposed a rule that could dramatically lower seniors’ out-of-pocket drug spending.
Lobbyists for the nation’s largest pharmacy benefits managers (PBM) are sure to fight the proposal tooth and nail. These PBMs, which effectively set drug prices for the entire country, want to continue overcharging the 42 million seniors and disabled people who have earned prescription coverage through Medicare Part D.
Department of Health and Human Services (HHS) officials must resist this lobbying blitz. Their proposed rule would improve seniors’ physical and financial health and make drug prices more transparent — real health care triple play.
PBMs negotiate drug prices with pharmaceutical manufacturers on behalf of the insurers who sponsor Medicare prescription drug plans. PBMs also determine what prices people pay at the pharmacy.
PBMs have enormous leverage to extract rebates from manufacturers. Just three PBMs control over three-quarters of the market. So they can threaten to block tens of millions of Americans’ from accessing a drug company’s medicine unless the company offers significant price concessions.
They have used this leverage to great effect. The dollar value of the rebates negotiated by PBMs has increased 24 percent per year between 2010 and 2015, according to HHS. These rebates lower insurers’ costs, thus enabling them to slash premiums for beneficiaries.
However, although the rebates reduce premiums, they don’t lower Medicare beneficiaries’ out-of-pocket expenses. That’s because many Part D plans require beneficiaries to pay coinsurance — a set percentage of a drug’s cost — rather than a flat copay. This coinsurance is tied to the list price of a drug, not the after-rebate price that PBMs and insurers pay.
For instance, imagine a drug’s list price is $140, but a PBM negotiates a $40 rebate.
Let’s say one beneficiary — we’ll call her Rosie the Retired Riveter — has a Part D plan that requires her to pay 25 percent coinsurance on this particular drug. Rosie would pay 25 percent of $140, or $35 at the pharmacy counter.
Rosie’s insurer only paid $100 for the drug, thanks to the PBM’s rebate. So Rosie shouldered 35 percent of the insurer’s burden, not 25 percent.
The HHS rule would alleviate beneficiaries’ out-of-pocket burdens by requiring PBMs to pass a to-be-determined percentage of manufacturer rebates on to patients. For instance, if the PBM factored half of its $40 rebate into the price at the pharmacy counter, Rosie would pay 25 percent coinsurance on a $120 drug — for a total out-of-pocket cost of $30.
Rosie would save $5 per prescription refill compared to the status quo.
And there are a whole lot of Rosies out there. HHS estimates that if PBMs factored even one-third of rebates into the price at the pharmacy counter, Medicare beneficiaries would save $19.6 billion from 2019 to 2028.
Lower out-of-pocket costs would make it easier for seniors to afford their prescriptions and take them as directed. This improved medication adherence would help folks stay healthier, further reducing spending on hospitalizations and other preventable costs. America loses about $290 billion each year due to poor medication adherence.
The proposed rule would also curb drug price inflation. Right now, drug companies set high list prices because they know they’ll have to offer PBMs significant rebates.
PBMs like this opaque status quo. As Community Oncology Alliance executive director Ted Okon recently explained: “PBMs make more money from paying closer to the list price and receiving a rebate rather than an upfront discount.”
This large — and growing — gap between the drugs’ list prices and the actual, secret prices PBMs pay is bad for competition. Markets are less efficient without clear price signals. As HHS notes, the rule “would improve price transparency which may have a positive effect on market competition and efficiency.”
The HHS proposal would lower Americans’ out-of-pocket drug costs and improve their health. Patients can only hope that the department fleshes out and finalizes the rule, instead of bowing to pressure from the powerful PBM industry.
• Peter J. Pitts, a former Food and Drug Administration associate commissioner, is president of the Center for Medicine in the Public Interest.
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