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

Drug prices
Pharmacy benefit managers call drug rebate proposal ill conceived. (Getty/Charles Wollertz)

The evidence backing the Trump administration's plan to end pharmacy benefit manager drug rebates is "at best anecdotal and at worst circular," according to a new report supported by the Pharmaceutical Care Management Association.

PCMA released a report (PDF) conducted by Matrix Global Advisors’ (MGA) President Alex Brill that suggests there is limited evidence supporting the claim that rebates are tied to higher list prices and that the plan does not properly target the the Department of Health and Human Services' (HHS) stated goals. 

PCMA said in a statement that the rebate rule, which was released in January, is “poorly conceived,” arguing that the change would increase beneficiary premiums and taxpayer spending. In the rule, the administration calls for an end to anti-kickback safe harbor protections for rebate negotiations and suggests those protections instead be extended to point-of-sale consumer discounts.

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One of the primary goals of the original proposal was to reduce federal spending, according to the report. But Brill argues that PBMs should continue to be allowed to negotiate lower drug prices for consumers, as there is not enough evidence to support the idea that restricting rebates will lead drug companies to lower prices. 

RELATED: Drug price policy can't focus just on rebates, study says

“The proposal to restrict rebates is poorly conceived and holds the potential for serious negative consequences to federal healthcare spending, beneficiaries’ premiums, and competition in the supply chain,” Brill wrote in the report. 

In fact, the report estimates that the rule would increase Medicare spending by nearly $200 billion in the next decade. Plus, many interest groups would be affected: more than 67,000 pharmacies, 1,800 drug manufacturers, 900 health insurance plans, 60 PBMs and 56 Medicaid agencies. 

CMS' Office of the Actuary estimated (PDF) that the rule would increase total drug spending by $137 billion by 2029 and increase federal spending on Medicare Part D by $196.1 billion. It also suggests overall beneficiary drug spending will decrease by $43 billion in that window, as out-of-pocket costs will go down by $93 billion but Part D premiums will increase by $50 billion.

Beyond the claim that rebates are leading to higher-priced drug costs, HHS cites three important factors in its decision to propose restrictions. First, the administration claims Medicare and Medicaid managed care organization beneficiaries pay a higher share of their drug costs. Second, HHS believes that spending is high in these programs because the best prices exclude manufacturer rebates. And third, the government fears that plan sponsors under Part D and managed care organizations lack transparency. 

RELATED: PBMs launch counterattack following Trump administration’s plan to end drug rebates 

But the MGA argues drug manufacturers are unlikely to pass on 100% of discounts to consumers if the rule is finalized, because forcing transparency will likely have adverse effects on net prices in Part D. This could limit competition among manufacturers—ultimately leading to higher average prices. 

As policymakers continue to debate ways to lower drug costs, PBMs and rebates have become a prime target. Pharmaceutical companies frequently cast blame on PBMs and insurers for price increases. 

Despite PCMA's concerns and the data in the report, the proposed changes are not expected to affect profits over the long term for health insurers, drug companies, distributors or PBMs, according to Fitch Ratings. 

“Insurers and others in the pharmaceutical supply chain have flexibility to increase premiums or mark-ups, alter formulary drug offerings or use a combination of factors to largely offset rebates that may be passed directly to the consumer,” Fitch said. “As a result, the credit implications of eliminating rebates are expected to be modest for those entities that demonstrate the ability to adapt.” 

Drug rebates in the private sector are also on the chopping block. Last month, Sen. Mike Braun, R-Indiana, introduced the Drug Price Transparency Act alongside two other bills aimed at lowering drug prices in the private sector

The open comment period on the proposed ruling ends next week, and executives at five major PMCs are confirmed to testify before the Senate Finance Committee. 

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