By John Wilkerson
September 8, 2021
By defining “cost” in Medicare Part D as the net cost after rebates, the government could share rebates with seniors without significantly increasing Medicare Part D premiums, which costs taxpayers in additional premium subsidies, and without giving drug companies more profits, according to West Health. The West Health proposal would require legislation; Democrats are writing drug-pricing legislation to help pay for their $3.5 trillion budget reconciliation package.
The Trump administration tried to share rebates with consumers by making rebates illegal, but that approach was criticized because it would have raised premiums and could have boosted drug makers’ bottom lines. The HHS Inspector General makes an exception for rebates under antikickback law, and the Trump administration removed that exception. But the rule got tied up in court and didn’t take effect, and now Congress plans to delay the rule to help pay for infrastructure legislation.
“We designed the beneficiary rebate model to avoid these pitfalls and reduce seniors’ drug costs without increasing manufacturers’ bottom line,” West Health Director of Health Policy Sean Dickson wrote in a STAT editorial.
Dickson said the Trump rebate rule clashes with Part D’s design, namely the share of drug costs that drug makers cover while beneficiaries are in the donut hole. CMS’ actuary estimated that Trump’s rule would increase Part D premiums by 25 percent, increase Medicare spending by $196 billion, and increase drug manufacturer revenues by $171 billion. Drug makers would benefit from the Trump approach because it would slow beneficiaries’ progression into the donut hole, where drug companies pay 70% of beneficiaries’ drug costs, Dickson said. Also, that 70% is based on the list price, so drug companies would pay less if the 70% were based on a rebated net price.
The Pharmaceutical Research and Manufacturers of America did not respond to a request for its position on the West Health proposal.
Dickson proposes redefining cost as the net price after rebates. Currently, beneficiaries pay list prices before they hit their deductible, and coinsurance is based on list price, too.
His proposal would still raise premiums, just not as much as under the Trump administration proposal.
“We studied the effects of this change and found that, when combined with other reforms proposed by the Senate Finance Committee, Part D beneficiaries could save $29 billion on their prescription drugs between 2022 and 2029 alone,” Dickson wrote. “Further, this beneficiary rebate model is projected to save the Medicare program upward of $38 billion during that period.”