Plan to End Drug Rebates Adds Protections for Insurers
April 05 2019 - 1:50PM
Dow Jones News
By Stephanie Armour and Joseph Walker
The Trump administration on Friday said the federal government
would reimburse health insurers for financial losses caused by the
administration's plan to ban certain pharmaceutical-industry
rebates in Medicare.
The backstop on most of insurers' losses could help prevent
premiums from rising significantly as a result of the rebate-rule
changes, while making taxpayers responsible for a greater share of
cost overruns in Medicare's prescription-drug program.
The offer to assume most of the financial risk for the loss of
the discounts is a sign the administration is likely to move ahead
with its push to end rebates and could address some critics'
concerns. The idea has faced heated criticism from some Democrats,
with House Speaker Nancy Pelosi saying last month that such a move
would raise premiums and do little to lower drug costs.
The drug-rebate proposal is a marquee part of the
administration's push to lower drug prices. The rule would halt
billions of dollars in discounts that drugmakers give insurers and
companies such as CVS Health Corp. and UnitedHealth Group Inc. that
administer Medicare prescription plans.
Health and Human Services Secretary Alex Azar has said it would
spur manufacturers to pass discounts directly on to patients and
bring new transparency to prescription drug markets.
But how the change will affect the complex financial structure
of the Medicare drug program known as Part D is hard to predict.
The government's plan to protect companies that administer
Medicare's drug benefit could help minimize disruption to a program
that insures more than 40 million people during an election
year.
Federal spending is projected to increase by $196.1 billion over
a decade as a result of the rebate-rule change, according to
estimates by the CMS Office of the Actuary done prior to Friday's
announcement. Premiums paid by beneficiaries would rise by $58
billion over the same period, but beneficiaries taking high-priced
drugs would see their out-of-pocket costs decline by around $83.2
billion. Medicare is a federal health insurance program for people
age 65 and older and the disabled.
Drug makers, meanwhile, would save $39.8 billion over the decade
because mandatory discounts they provide during a gap in Medicare
coverage known as the "donut hole" would be reduced, according to
the actuary.
These estimates don't reflect the new risk-sharing program
announced Friday.
Rebates are a little-known but important part of the U.S. drug
pricing system. Drugmakers set list prices. But then many also
offer rebates, or discounts, that reduce the amount that companies
and the federal government actually pay.
The rebates can shape decisions about what drugs are offered and
how much patients pay out-of-pocket. Drugmakers say the practice
has led them to raise list prices to keep up with demands for
greater rebates by companies that administer drug plans -- which
seldom use the money to reduce out-of-pocket patient costs. That
view has been adopted by Mr. Azar, a former Eli Lilly & Co.
executive.
Critics also say they lead to higher prices without passing
savings on to consumers.
But health insurers and businesses that administer Medicare drug
plans say the rebates keep down premiums for all beneficiaries, a
contention many experts agree with. The base monthly premium for
Medicare drug benefits has declined for the past two years.
The administration in January revealed a proposal to end rebates
that go to insurers and companies that run drug plans in Medicare
and Medicaid by Jan. 1, 2020. Instead, the Trump administration
said it would create a protection for discounts offered to directly
to patients.
Insurers and companies that set up prescription drug plans have
balked. They also were concerned because they would have to submit
bids to offer drug plans in Medicare in early June without knowing
the fate of the rule or how drug prices could change.
Now the Centers for Medicare and Medicaid Services is saying it
will shoulder most of the risk, if the rebate rule is finalized.
After the first 0.5% of unforeseen profits or losses experienced by
insurers or others that administer drug plans, the federal
government would cover 95% of extra losses or get back of 95% of
extra profits. The risk sharing would be optional for companies and
last for two years.
"They are trying to deal with the uncertainty," said Tricia
Neuman, who heads the Medicare policy program at the Kaiser Family
Foundation, a nonprofit that focuses on health information.
Changes to the rebate system in Medicare could have a
trickle-down effect in the health system. Because the program
represents such a big market, rebates could also fade in the
private sector if they are ended in Medicare, some health analysts
aside.
Steps in that direction are already under way. Sen. Mike Braun
(R., Ind.) introduced legislation last month that would also end
such rebates in the commercial sector.
Write to Stephanie Armour at stephanie.armour@wsj.com and Joseph
Walker at joseph.walker@wsj.com
(END) Dow Jones Newswires
April 05, 2019 13:35 ET (17:35 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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