Will a change to rebate programs help curb prescription drug price hikes?

Observers who have paid any amount of attention to health care costs in recent years have likely spotted the biggest driver in annual growth: prescription drug prices. Many different issues have been discussed of late, pertaining to what steps both the pharmaceutical industry and state or federal regulators can take to address the trend.

At issue here is the fact that the majority of Americans understand the value of prescription drugs intrinsically, according to recent polling from the Kaiser Family Foundation. For instance, 58 percent of respondents said they felt pharmaceutical advances in the last 20 years have definitely made Americans' lives better. Of that group, almost two-thirds of positive respondents said they felt such advances made life “a lot better,” compared with the other portion who said the advances made life “a little better.”

Another 17 percent of respondents said they didn't think they advances made much difference, and 19 percent total felt prescription drugs made people's lives worse (delineated as 14 percent saying “a lot worse,” and 5 percent saying “a little worse), the survey found. An additional 5 percent said they weren't sure one way or the other.

At the same time, while the vast majority of respondents value the quality of life prescription drugs provide, even more – 79 percent of all respondents – felt the associated costs were “unreasonable.” Just 17 percent felt prices were reasonable, and 4 percent didn't know.

The heart of the issue
The poll also showed that people largely felt pharma companies were keeping prices high as a means of maintaining high profits. This was seen as the the primary factor behind rising prescription prices, cited by 80 percent of respondents (though they could choose more than one option). Almost 70 percent also felt the cost of researching and developing these drugs was a big cost driver, and slightly less than two-thirds felt the same way about pharmacy benefit managers trying to turn a profit. Finally, more than half said the cost of marketing such drugs pushed prices higher.

Curbing the rising cost of prescription drugs is difficult for just about everyone to figure out.

While 71 percent of those polled said they felt pharma companies were good actors in terms of developing effective drugs people need, only 25 percent of respondents said they trust those firms to price their drugs fairly, the report said. As recently as 2008, 41 percent of respondents felt companies could be trusted with fair pricing, showing just how far perception has fallen.

Where doctors come in
Of course, health care professionals are another part of the equation, since they are the ones writing the prescriptions people spend hundreds or thousands to fill. It's worth noting that a recent industry from SureScripts found that 87 percent of health care workers say they face a moderate or significant challenge understanding how much their patients' prescriptions cost, and 78 percent believe it's critical for them to have access to pricing information so they can better understand what their patients end up paying out of pocket.

Another 69 percent said it would be helpful if they could get clear information on lower-cost alternatives to prescriptions, such as therapeutic treatments, the survey found. This all comes as prescription spend is expected to grow at an average annual rate of 6.3 percent between 2017 and 2026, while total health care spending will rise by an average of 5.5 percent per year over the same stretch.

What's the argument?
For their part, pharma executives say their hands are, in some ways, tied as far as pricing goes, according to UPI. Several were recently called to testify before the U.S. Senate Finance Committee to inform lawmakers as to their side of the issue. Almost uniformly, C-suite executives from a slew of the biggest names in pharmaceuticals said that the issue was rebate programs between themselves and insurers and benefits managers that add up to tens of billions of dollars each year.

At issue is the fact that insurance companies have to provide pharmacy benefit managers with massive rebates or discounts on the drugs they sell so that people covered by those benefits providers have access to them, the report said. Pharma execs say that money is pocketed by benefits companies, rather than being passed along in the form of lower prices to consumers.

“None of the close to $12 billion of rebates that Pfizer paid in 2018 found their way to American patients,” Pfizer CEO Albert Bourla told lawmakers, according to UPI. “Pfizer supports reforms that would create a system in which transparent, upfront discounts benefit patients at the pharmacy counter, rather than a system driven by rebates that are swallowed up by companies in the supply chain.”

Merck CEO Kenneth Frazier noted in his own testimony that all involve recognize that more needs to be done – and that the way pricing works is actually a net negative for patients – but that both sides of this particular issue are dug in, so there needs to be some give from each, UPI reported. To that end, the Finance Committee will hold more hearings on the issue in the near future, and potentially use the findings there to inform legislative decisions in the year ahead.

The impact of rebates
While it's difficult to nail down a specific number on just how much rebates are contributing to higher prices, recent analysis from the office of Pennsylvania Auditor General Eugene DePasquale may shed some light on the issue.

“Rebates can actually drive up the cost of your prescription drugs by as much as 30 percent, meaning your brand-name heart medication, for instance, is likely almost a third more expensive than it needs to be,” DePasquale said in announcing his office's findings. “In short, manufacturers who are required to offer a rebate on a drug simply set a higher starting list price in order to maintain their profit. It's practically the same thing as a store marking up the price of an item before putting it 'on sale' – the actual savings are illusory, at best.”

Originally, many of these rebate programs were designed to help the state or federal government save money on prescription costs for Medicare and Medicaid, the report said. To that end, the Keystone State doled out some $3.5 billion for Medicaid prescriptions in 2017 – the latest year for which data is available – and received more than $2 billion back in rebates. As such, DePasquale does not think rebates should be eliminated entirely, but noted they may need significant reform when it comes specifically to private insurance.

He also called on Congress to write a federal law that requires 100 percent of all rebates to go back to the payer, rather than an insurance company or benefits manager, the report said. He further added Congress might be wise to revise the Social Security Act to alter rebate percentage requirements once again, as this has not happened since 2009.

Taking action?
The good news for consumers is that Congress might take action on the issue in 2019, before the 2020 election cycle really heats up, according to The Associated Press. One potentially significant way to do that is by putting a new cap on what people enrolled in Medicare Part D pay for their prescription drugs. People pay thousands of dollars per month in some cases, because Medicare's prescription benefits have not changed since companies started introducing medications that cost upwards of $1,000 per pill, and is governed by a “complex formula” that calculates patient expenses.

However, even with the federal government bearing the majority of those high prices, it can still cost people tens of thousands of dollars per year to get drugs they need to live comfortably, the report said. Whether that can be addressed in Congress this year remains to be seen, but the hearing for the Senate Finance Committee noted above is one of several on the subject that have already happened early in 2019.

Along those lines, the White House is likewise pushing for alterations to how rebate programs work, for both public insurers, like Medicare and Medicaid, and private providers. Health and Human Services Secretary Alex Azar and Inspector General Daniel Levinson recently came together to propose a rule change that would reroute the discounts reaped from rebates directly to consumers by rewriting certain aspects of the Anti-Kickback Statute. The hope is that this could reduce prescription prices between 26 percent and 30 percent, HHS reported.

“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,” Sec. Azar said in announcing the proposal. “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,” he added.

There is plenty for lawmakers, insurers and pharma companies to consider when it comes to reducing these costs, and if action happens in the near future, that may be a huge benefit for tens of millions of Americans. In the meantime, however, it's also incumbent upon insurers to make sure people understand their benefits and costs as it relates to prescription drugs so that there can be no confusion about this potentially sticky and troubling issue. That kind of outreach may help people feel better about their situations when they have to spend large percentages of their income on vital drugs.