Health Law Daily Actuarial study examines impact of rebate elimination on pharmaceutical costs
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Tuesday, February 5, 2019

Actuarial study examines impact of rebate elimination on pharmaceutical costs

By Jeffrey H. Brochin, J.D.

Assuming no behavioral impacts, the total net cost of the Medicare Part D program would remain unchanged from the current marketplace.

In conjunction with HHS’ proposed rule eliminating the Anti-Kickback Statute (AKS) (42 U.S.C. §1320a-7b) safe harbor protection for pharmaceutical rebates, the office of the Assistant Secretary for Planning and Evaluation (ASPE) engaged an actuarial firm to examine the impact of potential regulatory changes disallowing manufacturer rebates in their current form on the U.S. drug market. In particular, the report analyzed the impact that the potential change would have on stakeholders in the Medicare Part D program. Alteration of the safe harbor protection to no longer encompass manufacturer rebates could make them completely prohibited under Medicare Part D, but the report projects no impact to the marketplace absent behavioral changes (ASPE Report, January 31, 2019).

Who benefits from the rebates. Manufacturer and pharmacy rebates are negotiated by plan sponsors to help reduce net costs and in turn member premiums. Both manufacturer and pharmacy rebates are a form of direct and indirect remuneration (DIR), which is a payment occurring after the point of sale (POS) to help reduce the final price of a medication paid by the plan sponsor. Since rebates occur after the POS and are paid directly to the plan sponsor or pharmacy benefit manager (PBM), they only directly reduce costs for the plan sponsor and are not shared directly with members or other stakeholders at the POS.

Rebates and the AKS. Currently, all Medicare Part D rebates are protected by safe harbor regulations under the federal (AKS), a statute which otherwise prohibit payments in exchange for services under a federal healthcare program. If the safe harbor protection is altered to no longer encompass manufacturer rebates as HHS proposed, the rebates could be completely prohibited under Medicare Part D (see HHS proposes amending anti-kickback safe harbor for drug discounts, February 4, 2019). The study examined the impact of removing manufacturer rebates from the Medicare Part D program and replacing them with a price concession producing a correspondingly lower POS price. The report did not analyze the impact of any potential changes to pharmacy rebates—which are a different form of rebates common in Part D.

How the study was conducted. The actuaries looked at the impact for a status quo scenario (holding all other assumptions constant), as well as layering in potential behavioral changes by plan sponsors, members, and pharmaceutical manufacturers (e.g., tighter formularies, changes to price concessions, changes in utilization). They examined the 10 year estimated impact between 2020 and 2029 to member, government, and manufacturer costs in billions of dollars under varying behavior change scenarios, assuming the changes first took place in 2020. While several scenarios were presented, the authors noted that they did not intend to imply that any one outcome was more likely than another. For example, scenarios that may decrease costs are not necessarily more likely than scenarios that may increase costs.

The study’s findings. The report indicated several possible outcomes on stakeholders. Members could see overall cost savings driven by lower cost sharing, but the impact of the savings would be more heavily felt by those with higher spending levels on pharmaceuticals covered by rebates. The cost savings could be offset by higher premiums.

Manufacturers would see lower claim liabilities through the coverage gap discount program (CGDP), producing overall savings if there are no changes to total cost. However, there may be pressure from plan sponsors to offer increased price concessions. The government could experience cost increases if no behavioral changes were to occur, although the report indicated that strategic behavioral changes were likely with increasing bid amounts and member premiums. The report estimated increased formulary controls, higher price concessions, and lower price trends that would result in average member savings and decreased government costs. However, if price concessions were reduced, program costs could increase for the government and for members.

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