From industry to government, changes to the rebate system have been proposed.
Very few people actually pay the list price for a drug product. Drug makers set list prices then negotiate with pharmacy benefit managers (Express Scripts, CVS etc.) for the discounted prices they will pay. The pharmacy benefit managers often get a portion of the rebate as payment, but the bulk of the rebate goes to the insurance company or to large employers that pay their employees healthcare expenses. The rebates are paid as lump sums that supposedly reduce premiums and cover other healthcare costs.
Concerns about the rebate system were first raised in 2011 when CVS excluded over 30 drugs from its national formulary. Rebates were then used to negotiate pharmacy benefit managers, leading to competition between drug makers to get their products on formularies. Drug prices are raised so that bigger rebates can be given while still maintaining the same profit margins.
Drug makers say that pharmacy benefit managers, wholesalers and pharmacies, which receive a percentage of the list price as payment, are putting pressure on them to keep prices high. Pharmacy benefit managers and insurers argue, however, that their negotiations have kept prices from rising as high as drug makers would like to push them. Patients are paying the brunt, though, as insurance companies raise deductibles and out-of-pocket contributions in response to the higher drug prices.
Alex M. Azar II, the secretary of health and human services testified in June before a Senate committee that there may be a need to eliminate rebates.
The Pharmaceutical Research and Manufacturers of America recently proposed a new way for pharmacy benefit managers, wholesalers and pharmacies to handle rebates.
The Trump administration is also moving toward the elimination of a “safe-harbor” provision that allows rebates to be paid in Medicare’s Part D drug program without violating federal anti-kickback laws. If the change goes through, it won’t affect private insurance plans, but could eventually have a knock-on effect.
