The Great Rebates Debate
Rebates have been part of the pharmaceuticals business for many years. Now the Trump administration is preparing regulations that would end rebates, with the object of providing that discount on a drug’s price at the pharmacist’s counter.
On January 31, 2019 Health and Human Services Secretary Alex Azar and Inspector General Daniel Levinson proposed a rule to lower prescription drug prices and out-of-pocket costs by encouraging manufacturers to pass discounts directly on to patients and bringing new transparency to prescription drug markets. Azar has maintained this position, and reiterated it on April 10.
“Every day, Americans—particularly our seniors—pay more than they need to for their prescription drugs because of a hidden system of kickbacks to middlemen. President Trump is proposing to end this era of backdoor deals in the drug industry, bring real transparency to drug markets, and deliver savings directly to patients when they walk into the pharmacy,” said Secretary Azar.
“This historic action, combined with other administrative and legislative efforts on prescription drug pricing, is a major departure from a broken status quo that serves special interests and moves toward a new system that puts American patients first. Democrats and Republicans looking to lower prescription drug costs have criticized this opaque system for years, and they could pass our proposal into law immediately.”
“This proposal has the potential to be the most significant change in how Americans’ drugs are priced at the pharmacy counter, ever, and finally ease the burden of the sticker shock that millions of Americans experience every month for the drugs they need.”
How Rebates Work
Pharmaceutical manufacturers establish a list price for their products with an understanding that discounts and rebates will be used to reduce the list price employers or government programs actually pay, explains Deloitte. A clinical drug evaluation conducted by a Pharmacy Benefit Manager’s (PBM) Pharmacy and Therapeutics committee identifies which drugs have to be covered and which drugs are optional.
Health plans and PBMs then consider rebates as they design their formulary (i.e., the preferred drug list used by health plans). This discussion considers the breadth of the formulary (i.e., number of drugs per therapeutic category), whether the formulary is open or closed, and the number of formulary tiers. Rebates typically increase as a formulary becomes more narrow (or closed) because it increases the likelihood that certain drugs will be prescribed.
Under current law, rebates are permissible because the federal Anti-Kickback statue, which addresses healthcare fraud, has a discount exception (also known as the safe harbor). The administration’s “blueprint” to reduce drug prices includes the removal of this safe-harbor protection of manufacturer rebates. The intent is to decrease out-of-pocket costs for consumers and reduce overall drug spending.
Will eliminating rebates reduce drug prices?
The answer, at this writing, is that nobody really knows. The pharmaceuticals pricing mechanism is so complex, that the effect of eliminating rebates will depend greatly on what replaces them.
As of now, according to one study, some drug prices would rise (at the pharmaceuticals counter) while others would decline in price. There would be no overall price reduction, despite what the administration claims.
However, there are series of alternatives under consideration.
The Point-of-Sale model is one receiving much consideration by all parties. Under this plan, when the consumer fills a prescription, he/she gets a discount. A portion of the negotiated rebate between the manufacturer and the PBM/health plan is used to offset the consumer’s out-of-pocket expense at the pharmacy.
But it isn’t clear how much of the rebate will go into the consumer’s pocket. The portion of the rebate that is not passed on to the patient will probably still be split between the PBM and the plan sponsor. So the option is unlikely to achieve the Trump administration goal of reducing prices.
Another alternative is the negotiated discount price: This means manufacturers would negotiate discount prices directly with PBMs and plan sponsors. This discounted price would then be the basis for future out-of-pocket cost calculations for patients, and future reimbursement transactions.
The theory is that this would create a system in which each health plan would negotiate with each drug company for an upfront discount price that would be reflected at the pharmacy at the time a beneficiary fills her or his prescription — no more rebates and no hidden incentives for a big spread between list prices and true net prices.
The problem is that no one knows exactly how this would work. What would be the role of the PBM and how would the payer be involved?
So there is a lot more clarity needed on the way rebates would be replaced, and that may mean they will be around for a while.
PointData provides seamless rebates management
PointData provides proactive and robust rebate management. We offer pharmaceuticals companies the assurance of accurate data for rebates, and proper fulfilment of contracts.
Accurate data is critical to pharmaceuticals companies if they are to get the full benefit of working with GPOs and IDNs. No other company offers Data-as-a-Service as a format to manage rebates. PointData was founded by a team of seasoned IT professionals, all with years of experience in the healthcare industry. We believe the rebate processes for pharmaceuticals/biotech firms is in dire need of an update. As a result, our focus is on helping organizations to make their entire contracting process more efficient and to drive down the cost of services, freeing up resources to focus on activities that add greater value. Today, PointData is improving efficiency at pharmaceuticals firms, offering them our Data-as-a-Service platform and providing consulting services to integrate cutting-edge solutions.
The rebate validation process and the associated support activities are proving too labor-intensive and costly for pharmaceuticals firms. Yet managing these rebating processes efficiently is critical to pharmaceuticals firms’ success. Rebates are, of course, necessary to obtain formulary and tier placement. But rebates have to be negotiated with all the stakeholders in the pharmaceutical value chain every year, and then tracking how they are to be paid has become an overburdened complex process for pharmaceutical companies.
Using our data-as-a-service platform, and our proprietary software solutions to manage rebates, we can cut down on the time-intensive and error-producing process used by most pharmaceuticals firms. And firms can easily track every aspect of the rebate support process in real time. And we can track them. PointData can cut rebate processing costs and increase value obtained from rebates.