HHS Rebate Plan A Leap Of Faith? Lower Costs Hinge On Drug Firm, Plan Response

HHS seeks input on how stakeholders might adjust to a system without rebates and requests comments on three actuarial reports that attempt to project the financial impact of the change.

The success of HHS’ proposal to eliminate prescription drug rebates in order to decrease costs for patients and reduce government spending in Medicare Part D will depend on manufacturers lowering list prices and plans seeking greater drug discounts, the department acknowledges.

The proposed rule revoking the current anti-kickback safe harbor for rebates in Medicare Part D and Medicaid managed care plans was released by the HHS Office of Inspector General Jan. 30. (Also see "No More Rebates: HHS Proposed Rule Revises Anti-Kickback Safe Harbor" - Pink Sheet, 31 Jan, 2019.)

The proposal also creates two new safe harbors that would allow for discounts to be passed directly to beneficiaries at the point of sale and would protect manufacturer payments of flat service fees to pharmacy benefit managers.

The rule is scheduled to go into effect Jan. 1, 2020. However, CMS wants the safe harbor for point-of-sale discounts to go into effect earlier, 60 days after the rule is finalized, to provide the benefit to patients as early as possible.

The rebate policy could be the most impactful of the drug pricing policies advanced by the Trump Administration to date, with the effects likely spilling over into the commercial market. (Also see "Pfizer Expects Rebate Reform By HHS Will Extend Quickly To Private Market" - Pink Sheet, 31 Jul, 2018.) But skeptics worry it will lead to substantial increases in spending by Medicare and won’t significantly reduce patient costs.

HHS Secretary Alex Azar responded to those concerns in a speech to the Bipartisan Policy Center Feb. 1. He explained it’s likely beneficiaries would see premiums increase as a result of the rule but not by much; HHS estimates premiums could increase by about $3-$5 per member per month.

He also acknowledged that those with relatively low spending on drugs may not see reductions in cost sharing that would offset the premium increase. But he pointed out most seniors would benefit eventually. (The greatest benefit of the policy change is expected to accrue to the sickest beneficiaries, or those with the highest drug spend).

“It is possible that some seniors could see a slight increase in their Part D spending, [if] they don’t use drugs” and “don’t have big out-of-pocket costs that can be brought down through the new discounts,” Azar said.

The bottom line is “this proposed rule, if finalized, would significantly redirect the dollars flowing through the Part D program,” HHS notes. And “several of the positive and negative transfers are imperfect offsets of one another.”

But “the benefits of this system will materialize for this subset of these seniors when they do need prescription drugs, as almost all of us do eventually.” Azar also suggested that Part D sponsors have competitive reasons to keep premiums down because that’s how seniors choose between plans.

A lot will depend on how the supply chain responds to the disruption caused by the change. If manufacturers reduce their current list prices to an amount equal or similar to their current net prices, "there would be less impact on premiums,” the proposed rule says.

But if manufacturers do not reduce their list prices or adopt pricing processes that led to higher net prices, "beneficiary and federal spending on premiums and cost sharing could increase beyond the increase attributable to simply eliminating rebates.”

Similarly, if Part D plans change their benefit design with increased formulary controls or greater use of generic drugs, "they may be able to obtain additional price concessions from manufacturers” and that could decrease beneficiary cost sharing and federal spending on premiums, HHS explains.

But “if Part D plans were unable to achieve additional price concessions, and net prices increased, beneficiary and federal spending on premiums and cost sharing could increase.”

Actuarial Estimates Vary Widely

The proposed rule is accompanied by three economic analyses by the Centers for Medicare and Medicaid Services Office of the Actuary (OACT) and the actuarial firms Milliman and Wakely Consulting Group. The three differed in their assumptions about how stakeholders would respond to the proposed rule and their resulting estimates varied, at times widely.

For example, the OACT and Milliman projections regarding increases in federal government spending range from $1.1bn to $13.4bn in 2020, depending on the underlying assumptions. Projections for changes in government spending for 2020-2029 range from a decrease of $78.8bn to an increase of $196.1bn

The actuarial reports estimate that manufacturer revenues, as measured by changes in gross drug costs and coverage gap discounts, will decrease beginning in 2020 and each year after. Manufacturers are currently required to discount branded drugs by 70% when seniors are in the coverage gap.

The bottom line is that “this proposed rule, if finalized, would significantly redirect the dollars flowing through the Part D program,” HHS notes. And “several of the positive and negative transfers are imperfect offsets of one another.”

Furthermore, it is “difficult to predict the full extent of the transfers created by this proposed rule in the absence of information about strategic behavior changes by manufacturers and Part D plan sponsors in response to this rule,” the department concludes.