Drug prices Drug pricing and theimpact of rebates continues to be a fiercely debated topic in thepharmaceutical industry across legislators, public interest groupsand industry insiders. (Photo: Shutterstock)

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The White House has reversed its ruling from earlier this yearthat would have amended the safe harbor regulations eliminatingtraditional rebates and requiring discounts bemoved to the point of sale. The ruling was designed to decrease theoverall cost of drugs and lower the out-of-pocket cost burden forMedicare and Medicaid recipients with the largest impact being tothe Medicare population and health plans.

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While the proposed ruling was well-intentioned, most industryassociations and organizations predicted that while it woulddecrease the member impact at the point of sale, the overall impactwould likely produce higher premiums and increase the cost of theprogram to the federal government. Some estimated federal costscould expand by $177 billion over the next ten years.

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Related: CBO: Curbing drug rebates would costbillions

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The ruling to amend the safe harbor regulations and eliminatedrug rebates was specific to Medicare and Medicaid. However, Healthand Human Services Secretary Alex Azar had called on Congress tofollow suit in the commercial market and pass legislation thatwould eliminate traditional drug rebates.

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The industry had started to react to the pressures from HHS and congresswith PBMs either launching or promoting point-of-sale rebateprograms for their government and commercial clients. In fact, onelarge PBM stated that all new commercial business that goes liveafter 2021 will only contain a point-of-sale rebate option whileallowing existing plans to continue with the traditional rebatearrangement. All of this led to concern in the industry and acrossthe commercial market as the proposed legislation was projected toactually increase overall cost for members and employers.

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Drug pricing and the impact of rebates continues to be afiercely debated topic in the pharmaceutical industry acrosslegislators, public interest groups and industry insiders. Whileeveryone agrees that there is an affordability issue there are manydifferent ideas on how to address. Some manufacturers have workedto tackle rebates by launching authorized generics, products thatare equivalent to the brand products launched by the samemanufacturer at a reduced list price with a reduced rebate.

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Biosimilars have also entered into the marketplace that have asignificantly reduced rebate or result in no rebate payment at all.While these new products contain a lower list price, some PBMs havenot added the products to their formularies because PBMs state thatthe original product, including the rebate, still results in alower net cost. Even with these measures the “gross to net bubble,”the difference between the list cost and the net cost afterapplying the rebate, continues to grow with some plans achieving 20to 30 percent of their plan spend coming back in rebates.

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For commercial groups, point-of-sale rebates do not have actualimpact on the cost of the drug but simply moves the discount from apost-utilization payment to the plan sponsor to a discount for themembers at the point of sale.

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While any attempt to lower drug costs should be supported, pointof sale rebates simply move dollars from a retro payment to apoint-of-sale discount. This change does not have any materialimpact on the overall cost of drugs and in fact, payors may notrealize the full value of the rebate as PBMs will typically accountfor the time value of money in the discount that they offer at thepoint of sale. This will diminish the overall value of the rebateapplication. Implementing point-of-sale rebates comes down to abusiness decision on the part of the plan sponsor as to whetherthey want to decrease the member cost at the point-of-sale or usetheir rebate dollars to offset premiums or fund other healthcare orbenefit initiatives.

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Thatcher Sloan([email protected]) is a principal advisor at Confidio, atechnology enabled pharmacy benefit consulting firm servingmillions of members nationally. 

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