The Trump administration’s proposed new rule taking aim at healthcare costs by eliminating hidden drug rebates is a positive step that would increase transparency and eliminate conflicts of interest — and better serve both employers and employees in the process.
That’s the view of one of the largest employer groups, after the Trump administration proposed a major change last week to how the U.S. drug pricing system works, in an effort to bring down the cost of prescription medications for patients. The proposed regulation from Health and Human Services Secretary Alex Azar would eliminate behind-the-scenes discounts among drugmakers, insurers and go-betweens and instead require that the rebates be paid directly to consumers when they buy their medications.
“This is one of the most transformative health reforms we’ve seen in the past few years,” says Mike Thompson, CEO of the National Alliance of Healthcare Purchaser Coalitions. “Rebates sound good in [theory], but the reality is they’ve disrupted [the marketplace] and have created a market that is non-transparent and more focused on rebates than value.”
This proposal would increase pricing transparency for pharmaceutical consumers and will help eliminate conflicts of interest, ultimately leading of greater competition based on value from the eye of the employer, employer groups argue.
“The push for more straightforward, simple and streamlined supply-chain pricing and contracting models is reaching a tipping point,” says Brian Marcotte, president and CEO of the National Business Group on Health.
Employers have been calling for change in the drug industry and long argued that drug rebates are an ineffective strategy: 84% say the pharmaceutical supply chain needs to change and 35% believe it needs to be more transparent and that drug manufacturers rebates should be reduced, according to a National Business Group on Health survey.
Three-quarters of large employers do not believe drug manufacturer rebates are an effective tool to drive down pharmaceutical costs, and more than 90% of employers would welcome an alternative to the rebate-driven approach to managing drug costs.
If the rule goes into effect, the transition will be critical for employers, as many of them have three- to five-year contracts with their pharmacy benefit manager, Thompson says.
“Obviously those contracts would quickly become null and void if the rebates were eliminated,” he says. “I suspect there will be some sort of transitional rules that will allow employers and PBMs to transition to the new rules.”
The move also will give employers more power when it comes to drug pricing, he adds. “Ultimately we’re going to have greater transparency at the individual drug level and employers will be able to be much more effective and influencing the practices and drug pricing of PBMs and ultimately the pharmaceutical industry.”
Thompson says that under the proposed rule, employees would get the benefit of the discounts that were previously behind the scenes. “That will be at the expense of the employer, but they’ll have other ways they can balance their financial needs,” he says.
For employers that have fixed copays, there’s no real effect financially, he says, assuming those rebates get translated into the net prices for the pharmacies. While employers in the end will come out even, they just won’t see these big rebate checks; instead they’ll see the actual costs on the front end.
“But for employers who offer percentage coinsurance, today, very few of them would have passed back the value of the rebate in how the employees were getting charged the coinsurance,” he adds. “For those employers, the employees will start getting the benefit of their share of those discounts.”
As PBMs play an important aggregation role for employers, Thompson says, the proposed rule does not spell their demise.
However, the rule will lead to more transparency and greater competition among PBMs, including non-traditional PBMs, he says. “It will help to eliminate what many have perceived as conflicts of interest in how formularies and drug management have been performed in recent years,” Thompson says. “From that perspective, this is critical to the long-term sustainability of this industry.”
Some critics warn the proposed rule could lead to higher premiums for consumers.
“We are concerned that eliminating the long-standing safe harbor protection for drug manufacturer rebates to PBMs would increase drug costs and force Medicare beneficiaries to pay higher premiums and out-of-pocket expenses, unless there is a viable alternative for PBMs to negotiate on behalf of beneficiaries,” says Pharmaceutical Care Management Association President and CEO JC Scott.
“While we are reviewing the proposed rule, we stand ready to work with the administration to achieve our shared goal to reduce high drug costs,” Scott adds. “PBMs are part of the solution to high cost prescription drugs. Drugmakers alone set and raise prices.”