What you need to know about the forces reshaping our industry.


May 6, 2019

Will eliminating drug rebates lower Rx costs? Probably not, CBO says.

Daily Briefing

    The United States' total prescription drug costs are not expected to decrease if CMS finalizes a proposed rule designed to prohibit drugmakers from paying rebates to pharmacy benefit managers (PBMs), according to a Congressional Budget Office (CBO) report released Thursday.

    Infographic: Get 4 pharmacy-led tactics to reduce your employee benefit costs

    Background: HHS releases proposed rule on PBM rebates

    Drugmakers currently establish a price for their drugs and then negotiate with PBMs to reach an agreement on a discount for the products, which the drugmakers pay to PBMs on behalf of health insurers in the form of rebates. PBMs and insurers typically share the rebates, and have faced criticism for not passing those savings along to consumers.

    Trump administration officials have been critical of the rebates, and suggested the administration could look to the change the rebate system as part of broader efforts to lower prescription drug prices.

    HHS in January released a proposed rule that would overhaul the existing drug rebate system. HHS proposed altering safe harbor protections under the federal Anti-Kickback Statute so that they no longer allow drugmakers to pay rebates tied to a percentage of a drug's list price to Medicare Part D plans, Medicaid managed care plans, and PBMS. The change, if finalized, would take effect Jan. 1, 2020.

    Instead, HHS proposed two new safe harbor provisions:

    • One that would allow PBMs and insurers to negotiate rebates with drugmakers as long as those rebates are shared directly with patients at the point of sale; and
    • Another that would allow PBMs to receive fixed fees for services provided on behalf of insurers.

    Those provisions would take effect 60 days after the proposed rule is finalized.

    Rule would not lower Rx drug prices, but would increase government spending, CBO projects

    But CBO in its report projected that finalizing the proposed rule would not result in lower prescription drug prices, because "rather than lowering list prices, [prescription drug] manufacturers would offer the renegotiated discounts in the form of chargebacks."  According to Modern Healthcare, chargebacks are discounts only available for prescription drugs covered under Medicare Part D and Medicaid managed care, not the entire prescription drug market.

    Further, CBO predicted drugmakers under the rule "would withhold some of the discounts they previously negotiated that could no longer be used under the rule—particularly those based on whether a PBM met targets for the share of prescriptions filled with a manufacturer's drug." In particular, CBO estimated drugmakers "would withhold about 15% of the amounts they currently rebate to PBMs in Part D and would negotiate discounts approximately equal to the remaining 85%."

    In addition, CBO estimated that the rule would increase government spending by a total of $177 billion from 2020 to 2029. CBO said the rule would increase Medicare spending by $170 billion and Medicaid spending by $7 billion over the next decade.

    CBO in the report listed several factors that would drive the federal spending increase. For example, CBO predicted Medicare spending would increase under the proposed rule because PBMs, Part D sponsors, and other insurers would increase premiums to offset rebate losses, Axios' "Vitals" reports.

    CBO said federal spending would increase because "higher premiums would lead to larger federal subsidies," and "the government subsidizes 74.5% of the basic beneficiary premium."

    CBO also noted that Part D beneficiaries' out-of-pocket costs could decrease under the rule, resulting in beneficiaries filling more prescriptions, which could drive up overall spending on prescription drugs. "Beneficiaries who do not fill some of their prescriptions because their current out-of-pocket expenses are high would be more likely to fill them and to better adhere to their prescribed drug regimens if their costs were lower, as they would be under the proposed rule," according to CBO.

    Further, government spending would increase because of the costs associated with implementing the proposed rule, CBO said. Specifically, CBO noted the federal government would have to cover the financial losses Part D plans would experience under the proposed rule. "If the proposed rule was implemented, that program would increase federal spending by $10 billion," CBO predicted.


    J.C. Scott, president and CEO of the PBM lobbying group Pharmaceutical Care Management Association, said, "The CBO analysis confirms that the proposed rule on prescription drug rebates will not achieve the administration's stated goal of reducing prescription drug prices." Scott said, "If the administration proceeds with a final rule, rather than create an entirely new system, point-of-sale savings should be administered through PBMs, who are uniquely positioned to implement them smoothly and seamlessly" (King, Modern Healthcare, 5/2; Owens, "Vitals," Axios, 5/3; Edney, Bloomberg, 5/2).

    Learn more: Get 4 pharmacy-led tactics to reduce your employee benefit costs

    Growth in health benefit spend is top of mind for employers across the nation. As large employers themselves, health systems are no exception.

    This infographic outlines four pharmacy-led tactics to improve employee medication management and support HR leaders in reducing employee benefit costs. Download it to get details about each tactic, examples of how your peers put them into action, and the resulting impact on health system spend.

    Download Now

    Have a Question?


    Ask our experts a question on any topic in health care by visiting our member portal, AskAdvisory.