By Pension and Benefits Editorial Staff
Policymakers recently expressed concern that pharmacy benefit managers (PBMs), who are responsible for negotiating payment rates for many of the prescription drugs distributed throughout the U.S., may not be doing so consistently with public policy goals of improving the value of pharmaceutical spending, according to a report by the Commonwealth Fund. Reforming the use of rebates, including passing the rebate through to payers or patients, may take steps toward resolving the issue but will not reduce overall pharmaceutical spending without other policies focused on improving value, noted the report.
Pharmaceutical spending. Pharmaceutical spending has risen faster than other aspects of health care delivery, with brand-name drug prices increasing by more than 120 percent since 2008. Pharmaceutical manufacturers set prices in the U.S. and determine pricing increases, but the effect of the pharmaceutical distribution supply chain on prices lacks transparency. Health insurers contract with PBMs to negotiate payment rates with manufacturers using formularies and utilization management tools. PBMs also contract with state Medicaid departments and commercial health plans to provide coverage for employer-sponsored plans, exchange plans, and Medicare Part D enrollees.
Rebates. PBMs have been able to arrange larger rebates from manufacturers, contributing to lower net prices and slower rates of growth in prescription drug spending. Rebates are paid to PBMs by manufacturers after the point of sale and can make up 40 percent or more of the drug’s list price. The process of negotiating rebates key in addressing high drug prices. While PBMs report that in many of their contracts, 90 percent of rebates are passed on to health plans and payers, health plans and payers reported they did not receive this share of savings. PBMs are reimbursed partially on the rebates they obtain, based on a percentage of a drug’s list price, creating the incentive to prioritize high-priced drugs over more cost-effective ones.
Reforms. Policymakers are undecided on whether to reform or eliminate the practice of rebates. One reform suggested is to require that the rebate be completely passed through to payers, restricting the PBM’s ability to retain the savings. PBMs would thus be dependent on generating revenue in other ways, such as administrative fees. However, this would also reduce incentives for PBMs to negotiate high rebates. Another suggested option would be to require PBMs to pass through at least 90 percent of rebate savings to payers, as is the current practice claimed by PBMs. However, enforcement of this option could require public disclosure of rebate levels, resulting in manufacturers offering lower rebates or no rebates at all. The report also addresses the option of basing pricing on comparative clinical effectiveness but dismisses the option as unlikely to lower pharmaceutical spending and improve overall spending.
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