In a move the entire healthcare industry has been anticipating for many years, the United States Department of Health and Human Services (HHS) finally proposed eliminating prescription drug rebates for federal health programs last week.
As we’ve repeatedly written (here, here, here and here); over the past two decades rebates went from being a marginal component of prescription drug pricing to perhaps the primary driver of rising spend. Manufacturers and pharmacy benefit managers (PBMs) recognized that by allowing drugs to inflate 10–20% annually and increasing these under table payments to keep the “net costs” lower, they can both make more money while smaller and less sophisticated employers would be left holding the bag. For many clients, rebates now amount to 20%+ of the total prescription drug plan spend. Additionally, consumers of certain drugs saw their out-of-pocket spend skyrocket as some drugs increased by wild multiples, while the intermediary was getting the increase refunded to it through these kickbacks.
With the new regulations, HHS would consider these rebates to be a federal violation of the anti-kickback statute – which is exactly what they are if not for a safe harbor exemption that had previously been (conveniently) written into the regs (can you say LOBBYISTS?). The administration concedes premiums will now go up, as insurers and PBMs lose this revenue stream, but consumers will save significantly in their out-of-pocket costs since the drug prices themselves will go down.
What’s next? Presumably, private employer plans will really start feeling the heat. Changes in Medicare and government programs have long been a harbinger of changes in the private system (see out-of-network fee schedules, value-based payments, coverage expansions, etc.). It seems like it’s now just a matter of time for the next shoe to drop. And it can’t come soon enough.