President Trump promised to reduce Americans’ pharmacy bills — and he’s delivering. His administration will soon finalize a rule that restructures the drug supply chain and ensure that tens of billions of dollars of hidden rebates and discounts flow to patients.
The rule affects Medicare Part D, the federal prescription drug benefit for 45 million seniors and people with disabilities. Part D isn’t like other entitlement programs. Numerous private insurers compete to sell prescription drug plans to Medicare beneficiaries. The government subsidizes and regulates these plans, but largely lets the private sector take the lead.
As a result of this market competition, beneficiaries can choose from dozens of plans, each with different premiums, co-pays and formularies — the lists of medicines covered by insurance plans.
Insurers often hire pharmacy benefit managers (PBMs) to design their drug benefits. PBMs decide which drugs to include on formularies and how much patients will have to pay out of pocket.
Drug makers offer massive discounts to PBMs to secure a place on formularies. In 2018, pharmaceutical companies offered $166 billion in discounts and rebates, close to triple the $59 billion they offered in 2012.
PBMs keep only a small slice of these rebates for themselves. They hand most of the rebates back to insurers, who use them to lower premiums for everyone.
Those savings do little good for the sickest patients who need many prescriptions. When these patients get to the pharmacy counter, they generally fork over co-pays or coinsurance — a set percentage of a drug’s cost — based on their prescription’s undiscounted “list” price, which could be more than double the discounted price.
Since PBMs keep some of the rebates as profit, they have every incentive to secure the biggest rebates possible. PBMs can get larger rebates from more expensive drugs, so they tend to load formularies with pricey branded medicines.
That leaves little room for generic drugs. PBMs included just 19 percent of generics on Medicare drug plans’ “preferred” tier — the one with the lowest co-pays and coinsurance — in 2015. That’s down from 71 percent in 2011.
In other words, under the status quo, insurers and PBMs deliberately steer patients toward more expensive drugs to maximize their own profits.
Trump wants to straighten out this twisted system. His proposed rule would make it illegal for drug companies to offer rebates to PBMs and insurers, unless those middlemen pass the savings directly to patients through lower co-pays and coinsurance.
The reform would eliminate PBMs’ incentives to funnel patients toward more expensive drugs when equally effective, cheaper generics are available.
Part D beneficiaries could see their pharmacy spending plummet. Sharing 100 percent of rebates would save diabetes patients $3.7 billion each year, according to the Partnership to Fight Chronic Disease. That’s around $800 per patient.
Another estimate found Part D patients battling cancer, autoimmune diseases, and other debilitating conditions could save $20 billion over the next decade.
These changes would undoubtedly save lives. Cost concerns are one of the most common reasons for patients to skip their pills. Medication non-adherence kills around 125,000 Americans a year. Patients live longer when co-pays and coinsurance are lower — it’s as simple as that.
The proposed rule is fantastic news for patients. Let’s hope the administration wastes no time in finalizing it.