Killing the Rebate Rule Is Bad for Patients

Millions of Americans who rely on prescription medicines just received some bad news.

On Thursday, the Trump administration shelved a proposal that would have saved patients billions at the pharmacy counter – and increased price transparency in the prescription drug market.

The move was upsetting, as patients across the country were excited about the Trump administration's proposal and promise to lower drug prices.  By changing course, the administration missed a chance to help patients afford the medicines they need.

The rule was aimed at Medicare's "Part D" program, which provides prescription drug coverage to seniors and those living with disabilities. More than 40 million Americans depend on Part D.

Since the government doesn't administer Part D directly – but rather, subsidizes and regulates private insurers to do so – patients can choose from a variety of plans, each with different premiums, copays, and lists of covered drugs called formularies. 

Insurers typically hire "pharmacy benefit managers" to design these plans and negotiate with drug companies. So in effect, PBMs decide which drugs are covered and how much patients will pay.

Understandably, PBMs have enormous leverage. Each PBM represents several insurers – and millions of patients. The three largest PBMs alone manage 70 percent of all prescriptions filled in the United States.

Drug companies are eager to offer major discounts in exchange for a spot on a plan's formulary. On average, manufacturer rebates cut drug list prices by up to 30 percent. Some discounts are even bigger. Last year, PBMs secured $166 billion in discounts and rebates.

But these discounts aren't directly passed on to patients. PBMs keep a small portion of these rebates for themselves and pass the rest to insurers, who use them to lower overall premiums. Since discounts are negotiated in secret, insurers typically peg copays to a drug's sticker price.

In other words, the discounts that PBMs secure are not reflected in the prices that patients pay. That's particularly bad for those living with autoimmune disorders, since so many of us rely on multiple medicines to control our disease and stay healthy.

Indeed, one in four seniors say it's difficult to afford their drugs.

The Trump administration was set to unmask these discounts of the rebate system. Its proposal would have re-categorized these discounts as "kickbacks" unless they were shared with patients at the point of sale.

The hoped-for pivot in targeting rebates to patients would have generated massive savings for people with autoimmune disease and others who rely on prescription drugs to lead full and healthy lives. Estimates suggest if 100 percent of rebates were passed directly to patients, Part D beneficiaries would save $57 billion over the next decade.

Consider the impact on those living with diabetes. According to the Partnership to Fight Chronic Disease, diabetes patients would have saved $3.7 billion a year if rebates were passed to patients. That's around $800 per patient annually.

Savings like these would also improve health outcomes. A Kaiser Family Foundation survey found that because of cost, one in three Americans reported "not taking their medicines as prescribed at some point in the past year." All told, so-called "non-adherence" claims 125,000 American lives each year. It also accounts for up to 13 percent of national healthcare spending.

Simply put, when patients can afford their medicines, they stay healthy. And when patients stay healthy, they avoid costly treatments and hospitalizations down the line.

A well-functioning and transparent rebate system would save patients money. But absent needed reforms, today’s flawed rebate system remains intact – providing little direct financial relief or better understanding of rebates to patients, continuing their struggle to afford their medicines. This doesn't make any sense.

By shining a light on the opaque drug-pricing system, the Trump administration would have spurred needed reform and helped millions of patients.  But instead, the administration has disappointingly decided to preserve an obscure system that keeps drug prices high.

Virginia Ladd is the President and Executive Director of the American Autoimmune Related Diseases Association.  AARDA brings a comprehensive focus to autoimmunity, the major cause of more than 100 serious chronic conditions affecting some 50 million Americans, most of whom are women.