GAO: PBMs passed on nearly all Part D rebates to plans in 2016

Drugs and money
The Government Accountability Office found that pharmacy benefit managers passed the majority of rebate dollars they got from drug companies on to Part D sponsors in 2016. (Getty/LIgorko)

A federal watchdog found that pharmacy benefit managers (PBMs) passed nearly all Medicare Part D rebates on to plan sponsors in 2016 as the amount of rebates skyrocket. 

The Government Accountability Office (GAO) explored the sources of revenue and service agreements between PBMs and Medicare Part D plans in a report released Tuesday (PDF). The report comes as the Department of Health and Human Services (HHS) has ramped up scrutiny over the administration of rebates, which the agency believes are a major driver of drug prices. 

GAO examined PBM revenue reported to the Centers for Medicare & Medicaid Services by Part D plan sponsors from rebates in 2016, the latest data available. PBMs negotiated approximately $18 billion in rebates from drugmakers for Part D plans in 2016 and passed all but $74 million on to plan sponsors.

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“The small amount of PBM rebate retention in the Part D program was also reflected in the service agreements we examined and in our interviews with PBM representatives,” GAO said. “Sixteen of the 20 service agreements that we reviewed included provisions that required the PBM to pass through all rebates to the Part D plan sponsor.”

RELATED: PBM executives to lawmakers: Ending rebates isn't the fix to push pharma to lower prices

GAO’s review of 20 service agreements between Part D sponsors and PBMs found the primary source of revenue for PBMs was the volume-based fee paid by plan sponsors based on the number of paid claims the PBM processed.

“None of the service agreements tied these fees to the price of a drug paid to the pharmacy,” the report said.

PBMs and Part D sponsors did earn $516 million from drug manufacturers in 2016 for non-rebate services and fees. These fees were for prescriber education programs, adherence programs and programs to administer the rebates.

“We were unable to determine the amount of revenue that PBMs obtained from these services because the volume of usage of services was not contained in any service agreements,” GAO said.

The report also found that the amount of rebates and other price concessions is growing rapidly. From 2014 to 2016, rebates and other price concessions increased from $17.5 billion to $29 billion, a 66% increase.

During that same time frame, gross Part D spending increased 20% from $120.7 billion in 2014 to $145 billion in 2016, GAO said in a report.

RELATED: PCMA report says HHS rebate rule would significantly boost drug, Part D spending

The report comes as PBMs and insurers are under fire for rebates, which HHS Secretary Alex Azar has called a “kickback.”

Azar has charged that PBMs force drug companies to raise prices to get a product on their formulary because they can keep a cut of the rebate. The higher the price, the bigger the cut for PBMs and insurers.

HHS issued a proposed rule last year that removed the safe harbor that ensured rebates would be shielded from prosecution under federal anti-kickback laws. The rule would have replaced that safe harbor with a new one for discounts offered at the point of sale at a pharmacy.

However, the White House pressured HHS to withdraw the rule after concerns it would lead to spikes in Part D premiums for seniors. Azar said after the rule was pulled that rebates' "days are numbered."

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