Congress is currently considering various proposals to “delink” pharmacy benefit company – also known as a PBM – compensation from the list prices of drugs, an action that would have a huge impact on prescription drug rebates. Pharmacy benefit companies use rebates as one tool to help control drug costs for health plan sponsors. As such, policies that put those rebate dollars at risk also risk harming the downstream users of rebates: health plan sponsors and patients. For example, economist Casey Mulligan concluded that a “delinking” policy in Medicare Part D would raise costs for patients and Part D plan sponsors up to $18 billion annually. As was aptly pointed out recently by Matrix Global Advisors, “The desire to control or restrict PBMs stems from a misconception about the role they play in the pharmaceutical supply chain.” So, let’s examine the role pharmacy benefit companies play in setting the path of drug rebates from drug companies all the way to patients.
Prescription drug rebates are discounts on brand and biologic drugs negotiated by pharmacy benefit companies from drug companies. Pharmacy benefit companies negotiate on behalf of large numbers of patients, which incentivizes drug companies to provide rebates to encourage more utilization of their drugs. Rebates lower the cost of health care by reducing the burden of high drug prices for health plan sponsors. For example, the Government Accountability Office (GAO) found that rebates are an important tool that keeps costs down in the Medicare Part D program.
“The desire to control or restrict PBMs stems from a misconception about the role they play in the pharmaceutical supply chain.”
But they don’t just benefit plan sponsors, they benefit patients as well. According to the Congressional Budget Office (CBO), “… with competitive forces in insurance markets and regulatory medical loss ratio (MLR) requirements, consumers probably receive a substantial fraction of those rebates—in the form of lower premiums or more generous benefits. … As a result, rebates benefit all enrollees in a plan, regardless of the number or type of prescription drugs they purchase.”
The Path of a Rebate
Typically, negotiated rebates are passed along to employers and other health plan sponsors. Pharmacy benefit companies keep very few of the rebate dollars. Health plan sponsors – and not pharmacy benefit companies – decide what happens to those negotiated rebates.
In Medicare Part D, according to the GAO, pharmacy benefit companies pass 99.6% of rebates back to Part D plan sponsors. In the commercial market, in a survey of pharmacy benefit companies, PEW Research Center reported an average of 91% of rebates passed back to employers and health plan sponsors. More recently, three large pharmacy benefit companies publicly stated that they pass through 95% or more of the rebates that they collect.
“The insurer, in turn, shares most of the rebate with its enrollees in the form of lower premiums or more generous benefits on its insurance coverage.”
Once employers and plan sponsors receive their rebate dollars, they choose how to deploy them. Nearly universally, they use them to lower drug costs for their plan enrollees – the patients. Again from CBO, speaking about the role of rebates for health insurance across markets, “The insurer, in turn, shares most of the rebate with its enrollees in the form of lower premiums or more generous benefits on its insurance coverage.” Remember, too, that the patients’ cost sharing for rebated brand drugs typically is considerably lower than that for brand drugs without rebates.
In Part D, GAO has been very clear about how pharmacy benefit companies and plan sponsors use rebates. In their large-scale examination of pharmacy benefit companies in Part D, they concluded that rebates are being passed to plan sponsors and that those rebates are a significant downward pressure on premiums, which has led them to be both stable and affordable for many years.
“Two separate surveys found that nearly 90% of respondent employers use their rebates directly for the benefit of their employees. ”
Two recent surveys have asked employers who offer health insurance to their employees whether they receive rebates and what they do with those rebate dollars. Both surveys confirm that employers receive rebates from a pharmacy benefit company. They then use those rebates to benefit the plan’s members – the employees and their families. Only 12% of respondents in each survey reported using rebates for uses other than making benefits more affordable for employees. In other words, two separate surveys found that nearly 90% of respondent employers use their rebates directly for the benefit of their employees.
Patients benefit from the rebate dollars negotiated by pharmacy benefit companies. We know this from GAO. We know this from CBO. And now we know this straight from the employers too.
