CMS: Current Rx-Price Rebates, Concessions May Not Benefit Consumers, Medicare

January 25, 2017

In response to expensive drugs, managed care plans and pharmacy benefit managers in recent years began increasingly using rebates and concessions from pharmacies that hold down beneficiary premiums in Medicare, but CMS reports these savings are not shared with consumers, whose out-of-pocket costs are based on drug prices before rebates and concessions, and the rebates speed beneficiaries into the coverage gap, where they pay full price, and catastrophic coverage, where taxpayers pick up 80 percent of drug costs. Also, pharmacies say concessions they pay, sometimes months after they’ve billed for drugs and for reasons outside their control, can be greater than their profits.

The pharmaceutical industry says media reports on drug prices too often leave out rebates and other price concessions — those payments are proprietary — but CMS reports that while those payments reduce plan liability, it isn’t clear that they help the Medicare program or beneficiaries. Rebates and price concessions lower beneficiary premiums and Medicare’s subsidies to plans. However, they also increase government spending in other ways, and CMS reports the net effect is unclear.

The role of pharmacy benefit managers in Part D drug pricing is getting new attention. President Donald Trump advocates Medicare drug price negotiation, which Republicans oppose. When asked at his Senate Finance confirmation hearing Tuesday (Jan. 24) whether he would push for government price negotiation, HHS chief-nominee Tom Price instead spoke of the negotiations between drug makers and the private plans that administer the Part D drug benefit, and he said he is open to considering changes to the current system.

“As the growth of rebates and other price concessions places more of the burden on beneficiary cost-sharing, Medicare’s costs for these beneficiaries also grow,” CMS states in a new report. “Higher beneficiary cost-sharing also results in the quicker progression of Part D enrollees through the Part D drug benefit phases and potentially leads to higher costs in the catastrophic phase, where Medicare liability is generally around 80 percent.”

MedPAC reported that in 2015 Medicare spending on catastrophic coverage was rapidly growing due to expensive and widely used hepatitis C drugs, and the HHS Inspector General recently reported likewise.

Medicare makes lump sum payments to private insurers for delivering prescription drug benefits to Medicare beneficiaries. After the point of sale, these plans or their pharmacy benefits managers often receive additional compensation, such as rebates or concessions from pharmacies, which CMS refers to collectively as “direct and indirect remuneration.” These payments are becoming more common and they’re increasing in value. The direct and indirect remuneration that plans report to CMS increased from $31 billion in 2012 to $50 billion in 2015, according to CMS.

Pharmacists praised the CMS report. The National Association of Specialty Pharmacy said in a release that rebates and concessions were designed to help plans and Medicare share savings from drug rebates paid out by drug manufacturers to pharmacy benefits managers, but pharmacy benefit managers have begun charging pharmacies fees that are based on performance measures that have little to do with the services that specialty pharmacies provide.

Pharmacies buy from drug makers and sell to pharmacy benefit managers. Pharmacy benefit managers often have performance standards for the pharmacies they buy from, and pharmacies can be penalized retroactively if they don’t perform well.

However, those measures are focused on primary care, and they typically are not relevant to the work that specialty pharmacies do, said Rebecca Shanahan, CEO of Avella Specialty Pharmacy. Also, the concessions often are greater than the profit margin on drugs the pharmacies sell, Shanahan said, not to mention the cost of providing the services associated with dispensing specialty pharmaceuticals. Pharmacies spend 20 minutes to an hour for each drug they sell processing paperwork, documenting clinical adherence and working with doctors and payers to help patients afford therapies.

Michael Agostino, vice president of Pharmacy Innovation/Business Development for Hy-Vee, said the fees typically range from 3 percent to 5.5 percent of payment, and they can be as high as 9 percent.

Shanahan and Agostino said they’re not against the concept of adjusting pay based on performance as long as the measures are relevant to specialty pharmacy. Such measures already exist, and specialty pharmacies are talking with plans and CMS about which ones to use. Specialty pharmacies also hope to get paid back fees that they say were improperly charged.

Community pharmacies also are pleased with the report. “DIR fees have wreaked havoc on independent community pharmacies and their ability to continue serving patients,” the National Community Pharmacists Association states in a release. “These fees, typically assessed by PBMs well after prescriptions are dispensed to patients, blow a hole in community pharmacy operating budgets that is difficult to mend.”

The Pharmaceutical Care Management Association, which represents pharmacy benefit managers, focused on lower premiums. “CMS’s report highlights how DIR reduces premiums for Medicare Part D beneficiaries, which leads to lower costs for the federal government. Stable and affordable premiums contribute to a 90% satisfaction rate among Part D enrollees for their drug plan,” the lobby group said. — John Wilkerson (jwilkerson@iwpnews.com)