Why insurers should negotiate with manufacturers for better drug prices

The federal government could save anywhere between $15.2 billion and $16 billion annually if it negotiated Medicare Part D prescription prices with drug makers, suggests a paper published by Carleton University and Public Citizen.

In 2013, Part D spent $69.3 billion on prescription drugs, but most of the spending seemed to be for brand-name medicines.

As the paper's authors point out, the high levels of deductibles and out-of-pocket copayments are the main reason why so many Americans cannot afford to fill their prescriptions. For instance, 16 percent of diabetes patients covered under Part D do not fill at least one of their prescriptions every year due to financial burdens.

The issue, however, is that the federal government cannot directly negotiate rebates due to the non-interference clause, the paper notes, but insurers can. At the beginning of this year, Aetna improved its 2015 outlook after it reached a deal to receive better pricing from Gilead, which makes the pricey hepatitis C drug Sovaldi, FierceHealthPayer previously reported.

So while Part D enrollees typically pay the official price for brand-name drugs, health plans are able to negotiate rebates with manufacturers--in turn, the rebates are passed along to beneficiaries in the form of lower premiums.

However, the Office of Inspector General at the Department of Health and Human Services believes that such rebates aren't always passed on to beneficiaries, notes the paper.

But when it comes to the drug makers' point of view, some have insisted that negotiations with insurers may not incentivize them enough to offer favorable rebates to Part D plan sponsors, which ultimately would lead to higher premiums, reports the Wall Street Journal. Due to higher premiums, more beneficiaries would forego prescriptions, resulting in higher healthcare costs.

For more:
- here's the paper (.pdf)
- check out the WSJ article

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