Medicare drug re­bates re­ward in­dus­try play­ers — and of­ten hurt pa­tients

Medicare and its ben­e­fi­cia­ries aren’t the win­ners in the be­hind-the-scenes re­bate game played by drug­mak­ers, health in­sur­ers and phar­ma­cy ben­e­fit man­agers, ac­cord­ing to a pa­per pub­lished Tues­day in JA­MA In­ter­nal Med­i­cine.

The pa­per, which dives in­to the com­plex and opaque world of Medicare drug price ne­go­ti­a­tions, finds that re­bates may ac­tu­al­ly dri­ve up the amount Medicare and its ben­e­fi­cia­ries pay for drugs — es­pe­cial­ly for in­creas­ing­ly com­mon high-priced drugs — and it of­fers some sys­temic so­lu­tions.

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

The pa­per’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 spend­ing. Trump’s ad­min­is­tra­tion has said it wants to low­er drug prices and hint­ed at man­dat­ing re­bates in Medicare. Lead­ers on Capi­tol Hill have called for Medicare price ne­go­ti­a­tions.

In the JA­MA pa­per, Duset­z­i­na cites the EpiPen as one ex­am­ple. Last year, ex­ec­u­tives at My­lan, the mak­er of the EpiPen, said the list price of the drug for life-threat­en­ing al­ler­gic re­ac­tions was $600, but the com­pa­ny earned $274 af­ter re­bates and oth­er fees.

That sav­ings, though, isn’t nec­es­sar­i­ly passed on to pa­tients in Medicare’s sys­tem. In­stead, the mon­ey tends to be swal­lowed up by health in­sur­ers and mid­dle­men like phar­ma­cy ben­e­fit man­agers.

And, even though pa­tients don’t pay list prices for their drugs, those high prices (like $600 for the EpiPen) are used to cal­cu­late how much Medicare cov­ers for any 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.”

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

And 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.

Duset­z­i­na and co-au­thors Re­na Con­ti, as­sis­tant pro­fes­sor of health pol­i­cy and eco­nom­ics at the Uni­ver­si­ty of Chica­go, and Dr. Pe­ter Bach, di­rec­tor of Memo­r­i­al Sloan Ket­ter­ing Can­cer Cen­ter’s Cen­ter for Health Pol­i­cy and Out­comes, pro­pose so­lu­tions to this prob­lem.

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

Bach’s drug pric­ing lab at Memo­r­i­al Sloan Ket­ter­ing of­fers an in­ter­ac­tive tool for com­par­ing how dol­lars shift when us­ing the list price and 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 pa­per sug­gest­ed.

This so­lu­tion comes, in part, be­cause the num­ber of Medicare en­rollees pay­ing coin­sur­ance for their drug, rather than a flat fee, has in­creased to 58 per­cent last year from 35 per­cent in 2014, the pa­per notes.

An­oth­er tac­tic would be to ad­dress the un­der­ly­ing dis­con­nect be­tween re­bate ne­go­ti­a­tions and sav­ings for Medicare and 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.

“It re­al­ly just stops us from ac­cel­er­at­ing peo­ple through the ben­e­fit,” Duset­z­i­na said.

Last month, the Phar­ma­ceu­ti­cal Re­search and Man­u­fac­tur­ers of Amer­i­ca, which rep­re­sents the phar­ma­ceu­ti­cal and biotech­nol­o­gy in­dus­try, launched a “Share the Sav­ings” ad­ver­tis­ing cam­paign call­ing for pub­lic ed­u­ca­tion about how the sav­ings from re­bates don’t ac­tu­al­ly get passed on to com­mer­cial in­sur­ance pa­tients.

In an email, PhRMA’s Hol­ly Camp­bell said the group’s com­mis­sioned re­searchhas found that re­bates and dis­counts have near­ly dou­bled from 2013 to 2015. Camp­bell said PhRMA be­lieves “in­sur­ance com­pa­nies should share more of the re­bates and dis­counts they re­ceive with pa­tients.”

Amer­i­ca’s Health In­sur­ance Plans, which rep­re­sents the in­sur­ance in­dus­try, calls the as­ser­tion that re­bates and oth­er dis­counts aren’t passed along “ab­solute­ly in­ac­cu­rate” and not­ed 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, said AHIP’s Cathryn Don­ald­son.

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

The pa­per’s fi­nal sug­ges­tion is about trans­paren­cy. It says 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.


First pub­lished at Kaiser Health News, a non­prof­it health news­room whose sto­ries ap­pear in news out­lets na­tion­wide. KHN is an ed­i­to­ri­al­ly in­de­pen­dent part of the Kaiser Fam­i­ly Foun­da­tion.

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