What do Medicare Part D plan sponsors need to consider if rebates cease to exist?

In recent years, rising prices of prescription drugs have been a concern for beneficiaries, payers, and the federal government. Another concern has been the lack of transparency about the true cost of a drug due to the complex ecosystem that can make a payer’s price lower than the actual point-of-sale (POS) price.

Given the design of the Medicare Part D program and the complex nature of sharing costs among the member, the federal government, and the Part D plan sponsors, the savings generated from rebates are not shared equally and directly among these stakeholders. Part D plan sponsors may use the savings from rebates to lower premiums. If rebates were instead applied at the POS, then they could lower beneficiary cost sharing, manufacturers’ coverage gap discount program payments, and reinsurance costs, possibly leading to premium increases. Because Part D is a competitive market where premiums are a primary driver of enrollment, Part D plan sponsors typically use rebates to reduce premiums rather than providing POS discounts.

The topic of rebates has been hotly debated and many industry experts believe that by not applying rebates at the POS, plan sponsors create a financial burden on beneficiaries using rebated medications. The Centers for Medicare and Medicaid Services (CMS) has released several communications and proposals addressing the issue of high drug costs and the financial burden on beneficiaries using rebated medications. In May 2018, the Trump administration released American Patients First, a blueprint to lower drug prices and reduce out-of-pocket costs, which includes moving at least a portion of rebates to the POS.

On January 31, 2019, the U.S. Department of Health and Human Services (HHS) released a proposed rule changing the current discount safe harbor under the Anti-Kickback Statute of the Social Security Act. This proposal would remove the safe harbor protecting rebates after the POS, or other direct and indirect remuneration (DIR) from drug manufacturers, paid to Medicare Part D plan sponsors, Medicaid managed care organizations (MCOs), and the PBMs providing services to these organizations. This proposal also would create two new safe harbors, one allowing payments from drug manufacturers to payers as long as they are included at the POS and one allowing certain payments from manufacturers to PBMs for services provided to the manufacturer by the PBM. This proposed rule currently only applies to Medicare Part D and Medicaid MCOs, although the Secretary of HHS has also asked Congress to pass a law that would extend this regulation to the commercial market.

In this article, Milliman’s Deana Bell, Jennifer Carioto, and Matthew Hayes explore what Part D plan sponsors need to consider when rebates cease to exist.