A new brief released in September by the Center for Medical Economics and Innovation at the Pacific Research Institute found that mandated drug rebates benefit patients more than payors, and continued reforms mandating drug rebates would lower overall health care costs and help patients with out-of-pocket drug costs.
According to the authors of the brief, Wayne Winegarden and Robert Popovian, “Ironically, the current drug concession system is raising patient costs,” noting that “Mandating that all drug concessions must benefit the patients purchasing the medicines is a positive reform that meaningfully addresses this problem.”
The brief includes statistics that show that medical care inflation increased 14.5% from 2014 to 2019, but the market prices of drugs grew only 8.9% in that same time frame, which was less than overall medical care inflation.
The brief found that the current system allows for fast growing list prices and concessions, but slow growing net prices, based on the incentives behind the current drug pricing system which promote higher out-of-pocket patient drug costs. Pharmacy benefit managers (PBMs), who manage prescription drug benefits on behalf of third-party payors, retain a percentage of drug price concessions, which often results in PBMs encouraging fast growing list prices that are offset by fast growing concessions. The end result is that the PBMs generate more revenue. Plan sponsors also benefit because they use a large share of these revenues to offset premiums for all policyholders. While drug manufacturer revenues depend on lower net prices, they compete for customers based on concession sizes.
Patient out-of-pocket costs, however, do not depend on the net price of medicines, or even the actual market price, because their out-of-pocket cost is typically based on the list price of medicines when they pay their co-insurance or deductibles. The high list prices in turn drive up out-of-pocket costs for patients, especially those prescribed expensive medications.
Recommended Policy Reforms
Winegarden and Popovian included some recommended policy reforms in the brief, including recommending that the manner in which rebates are paid be changed so that patient costs are tied to net prices, not list prices. They note that “[t]he purpose of insurance is to spread the financial costs associated with a risk across a wide population, with those people who did not experience the adverse event subsidizing the costs of those people who did. Since the current rebate system increases costs on patients who are prescribed expensive medicines in order to lower the premiums for everyone else, it is the antithesis of actual insurance.”
They do acknowledge that while Medicare Part D patients may experience small premium increases under the reform (roughly $41/year), patients with high out-of-pocket costs would save many times that – up to $1,763 annually, on average.
Winegarden and Popovian believe that fixing the problem is a “worthy goal regardless of the impacts on premiums and Medicare’s costs.”