The so-called “delinking” policy made news last week with the introduction of H.R. 6283. Among several glaring problems — including a rejection of free market performance-based incentives that lower drug costs for consumers — if enacted, “delinking” would hand a financial windfall totaling up to $32 billion annually to drug companies. So, it should come as no surprise that Big Pharma has made it their mission to push Congress to pass this legislation.

Recently, the cost implications of “delinking” were laid bare by health policy researcher Alex Brill, founder and CEO of Matrix Global Advisors (MGA). Brill’s analysis of the consequences of “delinking” legislation in commercial health insurance would be a collective increase in health insurance premiums of as much as $26.6 billion and an increase in drug company profits of more than $32 billion annually if “delinking” is enacted in Medicare Part D and the commercial market.

Please read Brill’s analysis: The Economics of “Delinking” PBM Compensation

Why is the “delinking” policy so harmful for patients and employers, yet so lucrative for drug companies? Brill suggests it would severely inhibit market-based incentives for pharmacy benefit companies to secure the deepest possible price concessions from drug companies, savings which are passed directly to health plan sponsors to use for the benefit of their employees. Less savings for plan sponsors and patients means more money in the pockets of Big Pharma.

Brill writes: 

“Recall that rebates reflect the savings generated for health plans as a result of the incentives in place today for PBMs. Curtailing such incentives will result in fewer rebates and thus higher net costs …  the impact of delinking in the commercial market rises to an increase in premiums of $8.4 billion–$26.6 billion. Additionally, this estimate only comprises premium increases. It does not include the increased nondrug health costs and the cost of reduced innovation that Mulligan also estimates.”  

Brill on Big Pharma windfall:

“A significant share of these higher costs (an estimated $6.3 billion–$21.9 billion) would accrue to drug manufacturers. Recall that Mulligan estimated that drug manufacturer profits in Part D would increase by $3.1 billion–$10.6 billion. Therefore, the aggregate effect of delinking in the commercial market and Part D could be an increase of more than $32 billion in drug profits.”

It’s important to remind lawmakers what’s at stake if misguided proposals are implemented without truly recognizing the implications. Taking away the performance-based incentive for higher rebates will lead to lower rebates, which means less savings in the hands of plan sponsors to better the lives of their employees, including by lowering health insurance premiums, lowering cost sharing, or offering more comprehensive benefits.

Also, it’s important to understand that research shows that prescription drug rebates negotiated by pharmacy benefit companies with drug companies are not correlated with increases in drug list prices, which are set solely by drug companies. Simply put, PBM-negotiated rebates do not force drug companies to increase drug prices.

Brill concluded his new analysis with a simple request to lawmakers:

“Before members of Congress pursue this policy in either market, they should understand its true impact: higher costs, not healthcare savings.”

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Cost analysis of “delinking” policy in Medicare: See a recent analysis from University of Chicago Professor of Economics Casey Mulligan published in the National Bureau of Economic Research (NBER) analyzed the economic impact of “delinking” – a proposal to ban list price-based compensation for pharmacy benefit companies, ending pay for performance incentives in Medicare Part D. Takeaways include:

• Financial Windfall for Big Pharma: The “delinking” policy has the potential to significantly increase drug prices, reduce drug utilization, and redistribute billions of dollars annually from patients and taxpayers to pharmacies and drug manufacturers. The result would be up to an additional $10 billion of revenue every year for drug companies, while costing patients and payers up to $18 billion.
• Taxpayers Pay More for Medicare: Annual federal spending on Medicare Part D premiums would increase $3 billion to $10 billion.
• Higher Premiums for Seniors in Medicare Part D: Reducing the negotiated rebates and discounts PBMs pass to health plans to lower drug costs for patients and health plans could lead plans to raise premiums to finance drug benefits. Eliminating the pay for PBM performance incentives could also reduce insurance coverage and appropriate drug utilization as costs for patients rise.

Read why Joe Grogan, visiting senior fellow at the USC Schaeffer Center and former domestic policy adviser under the previous administration, is also sounding the alarm over “delinking” legislation HERE.

Read economist Ike Brannon’s opinion on banning performance-based payments for pharmacy benefit companies. See HERE.

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PCMA is the national association representing America’s pharmacy benefit companies. Pharmacy benefit companies are working every day to secure savings, enable better health outcomes, and support access to quality prescription drug coverage for more than 275 million patients. Learn more at www.pcmanet.org