The House Ways and Means Committee will vote tomorrow, May 8, on legislation that will include a so-called “delinking” policy in Medicare. To be clear, the “delinking” policy proposal is backed by Big Pharma because it will significantly boost profits. At the same time as creating a financial windfall for drug companies, if enacted, “delinking” would increase Medicare Part D premiums and cost taxpayers billions.
In addition, “delinking” upends the current Part D regulatory set up to mandate how pharmacy benefit managers (PBMs) are paid for services. Under a new regulatory landscape created by the “delinking” policy, value-based arrangements would be nearly impossible to achieve.
A recent research paper, “Ending Pay for PBM Performance: Consequences for Prescription Drug Prices, Utilization, and Government Spending,” authored by University of Chicago Professor of Economics Casey Mulligan and published by the National Bureau of Economic Research (NBER) specifically examines the consequence of prohibiting linkages between pharmacy benefit companies’ compensation and prescription drug list prices in Medicare Part D. According to the report, such a policy would undermine incentives for pharmacy benefit companies to maximize competition in the market and secure savings for patients and health plan sponsors, resulting in higher drug prices and handing drug companies a profit-boosting windfall.
“Incentives matter for PBMs just as they do for other market participants. A financial reward for greater rebates and discounts results in greater rebates and discounts. Conversely, eliminating pay for PBM performance would reduce PBM performance. Absent the financial incentives, plans would pay more to manufacturers and to pharmacies because plans would receive less manufacturer rebates and pharmacy discounts,” Dr. Mulligan states in the paper.
Key Takeaways:
- 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 pharmacy companies and drug manufacturers. The result would be approximately an additional $10 billion 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.
- Reduces PBM competition: Introducing a new obstacle between buyers and sellers (in this case between health plan sponsors and PBMs) is unlikely to increase competition or new entrants in the PBM market or improve patient welfare.
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 Bannon’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
