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Report: Drug Rebates Reward Industry Players—and Often Hurt Patients

Authors explore murky world of Medicare drug-price negotiations

Medicare and its beneficiaries are the losers in the behind-the-scenes rebate game played by drug-makers, health insurers, and pharmacy benefit managers (PBMs), according to an article published in JAMA Internal Medicine and reported on the Kaiser Health News (KHN) website.

The article, which explores the murky world of Medicare drug-price negotiations, finds that rebates may actually drive up the amount Medicare and its beneficiaries pay for drugs, and offers some systemic solutions.

“How these rebates and price concessions happen between the manufacturer of the drug and the PBMs and health plans can directly impact patient cost in a big way,” said lead author Stacie Dusetzina of the University of North Carolina–Chapel Hill’s pharmacy school.

The article’s findings and proposed solutions come as President Donald Trump’s administration, Congress, and state lawmakers grapple with ways to control drug prices and overall health care spending. The Trump administration has said it wants to lower drug prices and hinted at mandating rebates in Medicare. Meanwhile, leaders on Capitol Hill have called for Medicare price negotiations.

The JAMA paper cites the EpiPen as one example. Last year, executives at Mylan, the maker of the EpiPen, said the list price of the epinephrine auto-injector for life-threatening allergic reactions was $600, but the company earned $274 after rebates and other fees. That savings, however, isn’t necessarily passed on to patients in the Medicare system. Instead, the money tends to be swallowed up by health insurers and middlemen, such as PBMs, the KHN article asserts.

And even though patients don’t pay list prices for their drugs, those heavy price tags (such as $600 for the EpiPen) are used to calculate how much Medicare covers for an individual patient—and sometimes what patients pay out-of-pocket, Dusetzina said.

“We’ve heard over the years that the list price doesn’t really matter––that it’s not the real price,” Dusetzina said. “It matters.”

But the way it matters is not readily apparent, according to the KHN report. Here’s what happens: When a Medicare patient picks up a prescription, what they pay toward it is generally based on the higher list price and not on the price after rebates, so the amount the beneficiary pays is scaled upward as a result.

Medicare uses that high-end list price to calculate how rapidly beneficiaries reach the dreaded “doughnut hole,” where patients pay a bigger share of the price of the drug after their spending hits $3,700, the 2017 benchmark. Once through the doughnut hole, Medicare picks up the bulk of the drug’s cost.

High list prices drive patients into and out of the doughnut hole faster, raising their out-of-pocket costs and Medicare expenditures, according to KHN.

Dusetzina and her coauthors, Dr. Rena Conti and Dr. Peter Bach, proposed solutions to this problem.

Bach called the current Medicare system “absolutely devastating for people on high-cost specialty drugs.”

Bach’s drug-pricing laboratory at Memorial Sloan Kettering offers an interactive tool for comparing how dollars shift when using the list price and the post-rebate price.

The authors recommend that patients should be charged flat-dollar copays rather than coinsurance charges, which are based on a percentage of the drug’s price. The copays could be tiered depending on the cost of the drug, the JAMA article suggested.

This solution comes, in part, because the number of Medicare enrollees paying coinsurance for their drug, rather than a flat fee, increased to 58% in 2016 from 35% in 2014, the article notes.

Another tactic would be to address the underlying disconnect between rebate negotiations and savings for Medicare and its beneficiaries. The authors suggest that incentives for health insurers need to change to require health plans to pay more of the drugs’ costs after beneficiaries pass through the doughnut hole.

In addition, Dusetzina said, using the post-rebate amount in Medicare’s calculations would allow Medicare beneficiaries to move through the doughnut hole more slowly. That would save both patients and Medicare money.

America’s Health Insurance Plans (AHIP), which represents the insurance industry, calls the assertion that rebates and other discounts aren’t passed along “absolutely inaccurate” and noted that the “true issue” is that drug prices continue to skyrocket “with no clear explanation as to how prices are set.” Insurers pass the savings from rebates on in different ways, including lower monthly premiums and co-pays, accoding to AHIP’s Cathryn Donaldson.

Dusetzina said there is one caveat to the Medicare study: It is unclear how many drugs receive a rebate and for how much because there is a lack of transparency when it comes to rebates.

The paper’s final suggestion is about transparency. The authors say that federal regulators should require rebate data to be reported for individual drugs, and then use that information to change Medicare’s benefit design in a way that “would lead to savings” for Medicare and its enrollees.

Source: Kaiser Health News; May 30, 2017.

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