West Health Calls For Differential Treatment Of Rebates, Pharmacy Fees


By John Wilkerson

March 8, 2021

CMS should subtract rebates and pharmacy fees from the prices that Medicare beneficiaries pay for drugs, but it should count them when calculating Part D coverage phases, according to West Health Policy Center. CMS has the authority to count rebates and pharmacy fees in one instance while not counting them in another, and it has already used that authority to count mandatory drug company discounts toward out-of-pocket calculations, West Health says.

West Health says its recommendations would lower what beneficiaries pay at the pharmacy counter without giving a windfall to pharma, and it would mitigate increases in premiums and Medicare.

The West Health recommendations are in response to CMS’ proposal to subtract pharmacy fees from prices that beneficiaries pay when they pick up prescriptions. Currently, when pharmacy benefit managers charge pharmacies fees for what they deem poor performance, those fees go to the PBMs and their health plan clients, which use them to reduce premiums; the fees are not subtracted from the prices that Part D beneficiaries pay. The same is true for rebates that brand drug makers pay PBMs.

The Trump CMS tried to undermine rebates, but its rule would increase premiums, which would increase government premium subsidies, so Congress delayed the rule to grab a $49 billion offset for the infrastructure law. Democrats plan to rescind the rule for another $143 billion offset in their drug pricing bill.

CMS’ proposed Part D/Medicare Advantage rule leaves rebates alone and instead proposes to undermine the fees that PBMs charge pharmacies, which are a much smaller pot of money. West Health says the proposed Part D rule, like the rebate ban rule, would benefit drug companies at the expense of taxpayers. The proposed rule would save drug companies $18 billion over a decade by lowering their coverage gap payments, and it would increase Medicare spending $51 billion.

The proposed rule also would save beneficiaries $29 billion. West Health supports that goal, but it says Medicare could lower beneficiaries’ costs at the pharmacy counter, while not increasing pharma profits and government costs, by using separate definitions for “actuarial negotiated price” and “benefit negotiated price.”

The actuarial negotiated price is West Health’s term for the price that beneficiaries pay at the point of sale. For that definition, West Health says CMS should subtract both rebates and pharmacy concessions, so beneficiaries pay the discounted price; currently they pay list price before hitting deductibles and 25% coinsurance is based on list prices.

The benefit negotiated price determines the coverage phase, and West Health recommends counting rebates and pharmacy fees when calculating which coverage phase beneficiaries are in. CMS already counts mandatory drug maker discounts when calculating how much beneficiaries have paid, even though beneficiaries don’t pay those costs, and rebates and pharmacy fees should be handled the same way, West Health says.

“This would extend the benefit of both pharmacy and manufacturer DIR to beneficiaries in the form of lower cost-sharing without decreasing manufacturer’s existing coverage gap discount obligations,” West Health says. “Further, by more rapidly moving beneficiaries through the Part D benefit phases, beneficiaries would face lower cost-sharing by more quickly progressing to the catastrophic phase where these beneficiaries’ cost-sharing would be only five percent of the drug’s cost, net of both pharmacy and manufacturer DIR.”

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