Why Drug Rebates Aren’t Working for Patients

By John M. O'Brien, NPC President and CEO

On July 27, I joined the USC-Brookings Schaeffer Initiative for Health Policy for a webinar focused on Medicare Part D drug rebates. This was a necessary and timely conversation, as it is becoming more important for health care stakeholders and policymakers to clearly understand how the rebate system creates barriers to affordable care for patients.

To start, rebates continue to get bigger: Data presented during the webinar showed that the average rebate has nearly doubled between 2015 and 2018, and that rebates sometimes reach 50% or more of the drug’s list price. Bigger rebates can result in better formulary placement, but that means we have a system that perversely rewards higher list prices, even as net prices grow at rates in line with, or slower than, inflation.

Which raises the question, where are those rebates going? A recent study by IQVIA showed that in 2020, 1 in 3 dollars spent on drugs went to someone other than the biopharmaceutical manufacturer, and there is little visibility into how that 33% is being spent. So, while list prices are going up to accommodate the costs of the drug supply chain, the subsequent discounts that manufacturers negotiate with these supply chain stakeholders are not being passed on to patients.

According to an analysis by the USC Schaeffer Center for Health Policy and Economics, the Medicare Part D rebates are being used to lower overall Part D insurance premiums. However, out-of-pocket costs for patients who need medication are going up, diluting the value of their insurance.

This opaqueness is a problem for employer-sponsored insurance as well. NPC surveyed employers about pharmacy benefit manager (PBM) decisions. Fifty percent of the employers surveyed said PBM decisions aren’t transparent, and only 30% understood the details of their PBM contracts. Without transparency, it’s harder for employers to push PBMs to pass rebates on to their employees.

Thus, problems with current insurance benefit design are exacerbated by a rebate system that incentivizes formulary choices based on the list-to-net price bubble — with middlemen pocketing the difference — rather than formulary choices based on patient-centered factors such as effectiveness and affordability. There are even publicly discussed examples of middlemen choosing to only cover a brand-name inhaler when a lower-cost generic was available. This isn’t patient-centered coverage.

Here’s the bottom line: It’s time to reform how we design health insurance benefits, so we can positively impact access and affordability for patients. It’s clear that focusing only on the price of drugs will not yield policy solutions that provide patients relief at the pharmacy counter. Our study with Xcenda, Affordability Is About More Than Drug Prices, explored the impact of potential government price controls and showed the challenge of passing along savings to patients without tackling benefit design. Only 1 in 4 of the health plan decision-makers surveyed would pass the savings from lower-priced drugs to patients (via lower copays). Most survey respondents said that no discount amount would trigger a drop in copays or coinsurance rates.

The growing discussion on drug rebates is healthy, and conversations like the one USC-Brookings hosted are critical in bringing stakeholders together to gain a better understanding of the barriers to affordable care for patients. The conversation is available for you to watch here.