December 1, 2020

HHS wants to eliminate Medicare Part D rebates. Here's what you need to know.

Daily Briefing

    HHS on Nov. 20 finalized a rule to eliminate manufacturer drug rebates paid to pharmacy benefit managers and Medicare Part D plans.

    Cheat sheet: Medicare Part D

    According to Politico, drugmakers have cited rebates as one of the "unseen costs" that raise prescription drug prices. However, insurers, pharmacy benefit managers, and drug pricing advocates have argued that removing rebates takes away their ability to negotiate lower prices and control costs for consumers.

    About the final rule

    The final rule, which was originally proposed in 2019, excludes rebates that manufacturers typically pay to pharmacy benefit managers and Part D plans from safe harbor protections under the Anti-Kickback Statute. The final rule does not remove safe harbor protections for manufacturer rebates paid directly to Medicaid managed care organizations, meaning manufacturers can continue to offer those rebates to Medicaid MCOs.

    In addition, the final rule creates a new safe harbor protection for discounts offered at the point-of-sale and for fixed-fee services arrangements between manufacturers and pharmacy benefit managers.

    HHS said the final rule, which is scheduled to take effect Jan. 1, 2022, aims to create an incentive for drugmakers to lower their drug list prices and reduce out-of-pocket prescription drug spending by offering rebates that currently go to insurers and pharmacy benefit managers directly to Medicare beneficiaries.

    HHS in a release said that "savings to patients may be nearly 30%" under the final rule because, "[i]n 2019, Part D rebates totaled $39.8 billion, representing an average discount of nearly 30% for brand drugs."

    In contrast, CMS' actuaries have estimated that the final rule could cost the federal government up to $196 billion over ten years, because patients' savings could lead to increased use of drugs covered by Medicare Part D. However, HHS in the final rule noted that "the range of actuarial estimates for this rule range from $100 billion in reduced federal spending if more than 100% of rebates are converted into list price concessions and Part D plans exert greater formulary control, to $196 billion in increased federal spending, if manufacturers reduce price concessions in Part D. There is wide variation in the analyses conducted that makes it difficult to project with certainty the impact of the policy change on federal spending."

    Final rule could be challenged in court

    According to Politico, insurers are expected to challenge the final rule in court, citing a regulatory issue that would require HHS to first publish a new proposed rule and solicit public comment. Insurers traditionally have supported rebates, noting it gives them leverage to negotiate lower prices, Politico reports (Owermohle, Politico, 11/20; Wilkerson, Inside Health Policy, 11/20 [subscription required]; HHS final rule, 11/20).


    Advisory Board's take

    The biggest questions to watch 

    Regina Lohr

    By Regina Lohr

    The biggest question surrounding this rule is whether it will be implemented. In addition to likely litigation from health plans, PBMs, and others who favor rebates, implementing the new rule would also challenge the existing pharmacy claims processing infrastructure to ensure that point-of-sale rebates and discounts were appropriately processed.

    While there is some debate on whether the final rule, if implemented, would lower or increase federal spending on prescription drugs, it does seem that the rule would lower payments at the pharmacy, especially for patients who use brand drugs in competitive classes, such as oral antihyperglycemic agents and insulins. Typically, brand-name drugs in classes with multiple competitors are most impacted by rebates. Given the association between medication affordability and adherence, this carries with it real potential to improve patient care and outcomes by ensuring that patients on commonly used, high-cost medications have to pay less out of pocket to access those drugs.

    Another issue to watch is of particular interest for 340B covered entities, their contract pharmacies, and pharmaceutical manufacturers, will be how this rule is implemented with regard to 340B-eligible prescriptions. I see two key questions here:

    1. How will supply chain participants guard against duplicate discounts? Prescriptions that are eligible for 340B discounts are not eligible for PBM-negotiated discounts (rebates). Currently, covered entities, PBMs, and manufacturers all take steps to identify and eliminate duplicate discounts. Even if a prescription's 340B eligibility is not known at the time of medication purchase, adjustments to the discount rate and elimination of duplicate discounts can be handled on the back end. This is possible because, under the current system, the patient's out-of-pocket costs do not change with the prescription’s 340B status. However, under the new system, if a prescription is identified as 340B-eligible after the point of purchase, it may be more challenging to make such adjustments.


    2. If this rule is implemented, will there be political pressure to change the 340B program to match its point-of-sale discount model? Making this shift would give patients a share in the 340B discounted prices. However, there are concerns, such as those expressed in a recent bipartisan letter from 217 members of Congress to HHS Secretary Alex Azar, which stated that "the use of a rebate model could threaten the ability of covered entities to access 340B savings and provide accessible, affordable prescription drugs and critical health care services to millions of low-income Americans the 340B program is intended to serve."


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