HHS wants to eliminate drug rebates in Medicare Part D and Medicaid managed care. But the CBO projects the resulting higher premiums will cost the government dearly. In an AIS Health, Radar on Specialty Pharmacy article, Jeremy Schafer, Precision for Value Senior Vice President, Access Experience, weighs in on the potential impact of the rule, and what that means for its future.

CBO Says Proposed Rebate Rule Will Cost Government $177B
by Angela Maas
AIS Health

When HHS unveiled a proposed rule in late January aimed at eliminating drug rebates in Medicare Part D and Medicaid managed care, the proposal was met with mixed responses (RSP 2/19, p. 1). If implemented, it potentially could result in a significant change not only to those markets but to commercial payers as well. But a recently released score from the Congressional Budget Office (CBO) calls into question whether the administration chooses to move forward with the proposal in its current form.

The proposal (84 Fed Reg 2340, Feb. 6, 2019) would do away with the safe harbor protection in the anti-kickback statute for rebates negotiated between manufacturers and PBMs. It also would add two safe harbors: one protecting some point-of-sale price reductions, allowing those savings to be provided directly to beneficiaries when they are filling a prescription, and a second protecting PBM service fees provided to manufacturers as opposed to health plans. The proposed rule calls for the changes to take effect Jan. 1, 2020.

The comment period ended April 8. The CBO says it does not expect a final rule before mid-June.

In remarks at the Bipartisan Policy Center Feb. 1, HHS Secretary Alex Azar claimed that in 2017, rebates within Part D totaled more than $29 billion. The practice, said the proposal, both contributes to rising invoice prices for drugs and incentivizes PBMs to favor more expensive drugs with higher rebates on their formularies.

The proposal includes scenarios from actuarial studies performed by the Office of the Actuary, Wakely Consulting Group and Milliman, which drew different conclusions about the rule’s effect on issues like premiums, out-of-pocket costs and government spending.

CBO Doubts That Firms Would Drop Prices

Now the CBO has weighed in. In its report, released May 2, the agency projects that if the rule is implemented as proposed, it will increase federal spending by approximately $177 billion from 2020 to 2029. Of that total, spending on Medicare Part D premiums would increase by about $170 billion. Without rebates to keep premiums low, beneficiaries would face higher premiums. The agency anticipates that “manufacturers would withhold about 15 percent of the amounts they currently rebate to PBMs in Part D and would negotiate discounts approximately equal to the remaining 85 percent. CBO expects that rather than lowering list prices, manufacturers would offer the negotiated discounts in the form of chargebacks,” which are shared with beneficiaries via a manufacturer payment to a pharmacy. It also concludes that “no current system could both meet the proposed rule’s standards and facilitate chargebacks. Implementing a system that could meet both of those objectives would require additional time.”

If “rebates could no longer be paid to PBMs in Medicare Part D,” but “systems are not available to support retail pharmacy chargebacks,…this would be an untenable situation,” says Elan Rubinstein, Pharm.D., principal at EB Rubinstein Associates, making it “reasonable to delay” the proposed implementation date.

Lisa Kennedy, Ph.D., chief economist at Epiphany, a company that performs health economics, reimbursement and market access studies, tells AIS Health she believes the rule will go into effect because “Azar has consistently been pretty vehement about implementing the plan.” She points out that “HHS announced on April 5 that for transitional purposes, there will be an optional pilot for two years that will help develop the systems required. This will allow plans to better prepare their bids in three years.”

“The increase in premiums was expected by many, but the growth in federal spending was somewhat surprising given that lower upfront prices would generally benefit the end payer, which in this case is the federal government,” says Jeremy Schafer, Pharm.D., senior vice president, director, access experience team at Precision for Value. “It seems changing the safe harbor may not accomplish patient savings or reduced government spending as hoped for by the administration.”

As for the estimated commercial market impact, Rubinstein tells AIS Health he disagrees with the CBO’s analysis: “CBO states that changes in list prices are unlikely, which doesn’t address the possible move from PBM rebates to pharmacy chargebacks in the private sector. Manufacturers, PBMs and pharmacies may find it confusing and administratively difficult to run concurrent PBM rebates (for the private sector) and pharmacy chargebacks (for the public sector) for the same drugs. So perhaps the safe harbor rule changes for Medicare and Medicaid will result in a marketwide change to pharmacy chargebacks.”

Noting that “comments have raised some concerns on Medicaid both on the statutory rebates and separately rebates to MCOs,” Kennedy says she “suspect[s] that there may be some change to Medicaid, but it is hard to know what this would look like” in a final rule. This, she says, “may have some impact on the cost of the plan for states and the federal government, and then the question is where those rebates could go as there isn’t drug cost-sharing for Medicaid beneficiaries. Insurers and provider/hospital comments have suggested that the ruling should be tethered to price controls to the pharmaceutical industry. I suspect that Azar may be thinking that these price controls may be the product of/achieved through other legislation.”

Schafer tells AIS Health that “in terms of the impact on the proposed rule, it provides ample ammunition to the opponents of the rule. Given that the 2020 election is kicking off, it is difficult to think the rule will be implemented as is when it would both increase government spending as well as premium costs on one of America’s most reliable voting blocks. I would suspect the rule will either be changed significantly, attempted in a very limited pilot form or scrapped entirely.”

View the report at https://bit.ly/2LsOzlq. Contact Kennedy at lisa.kennedy@epiphanomics.co, Rubinstein at elan.b.rubinstein@gmail.com and Schafer via Tess Rollano at trollano@coynepr.com.