Trump Wants Medicare Beneficiaries to Share in Drug Rebates

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By Mindy Yochelson

The Medicare Part D drug benefit would undergo major renovations that could lower some beneficiary costs but raise others, under the White House’s 2019 budget released Feb. 12.

Drug plans sponsors, like CVS and United Health Group, and their benefit managers would have to apply at least a third of the price concessions and rebates they receive from drugmakers to beneficiaries’ out-of-pocket spending for medicines they buy at drugstores.

“This will improve price transparency and allow beneficiaries to share directly in the savings from discounts negotiated by plans,” the budget said.

Pharmaceutical manufacturers pay rebates to plan sponsors and their pharmacy benefit managers so their products will receive favorable treatment on formularies.

Doubled-Edged Sword?

Plans say the rebates are passed on to the beneficiaries through lower monthly premiums. Because of this, some say the proposed requirement could be a double-edged sword.

“Sharing manufacturer rebates with consumers will decrease out-of-pocket costs for some, but it will also increase Part D premiums,” Elizabeth Carpenter, a senior vice president with Avalere Health, told Bloomberg Law Feb. 12.

An outline of the rebate idea was broached in November. The Medicare agency proposed changes for the 2019 Part D drug program and Medicare Advantage (managed care). This included a request for information asking the public about the possibility of applying the manufacturer rebates to the beneficiary’s share of payments.

The agency said beneficiaries would see lower prices at the pharmacy and on Medicare’s Plan Finder, beginning immediately in the year the policy takes effect.

Costs $42 Billion

However, the budget shows that applying rebates at the point-of-sale would actually cost $42 billion, rather than save money.

“The increased cost is due to higher premiums,” Ipsita Smolinski, managing director for Capitol Street, a health-care policy research group in Washington, told Bloomberg Law Feb. 12. Part D drug premiums are subsidized by the government.

“The health-care system is like a balloon—you push one part of and it impacts another part,” Smolinski said.

Saving $47 Billion

The budget would make a number of other changes to the drug benefit, with one of the most significant targeted at $47 billion in savings over the decade.

The Part D benefit has an initial coverage limit followed by a gap in coverage. Enrollees remain in the gap—or doughnut hole—until their out-of-pocket spending reaches the catastrophic coverage limit. After that, they pay 5 percent for their drugs.

However, drug manufacturers must provide a discount for drugs once enrollees enter the gap.

Trump’s budget would no longer count manufacturers’ discounts on drugs toward beneficiaries’ out-of-pocket costs in the coverage gap.

The discounts help propel the enrollees out of the coverage gap and into the catastrophic phase of the Part D benefit, where insurers only have to pay 15 percent of their costs.

Plans encourage beneficiaries to use costly brand drugs in order to accelerate them through the coverage gap and into the catastrophic phase, where Medicare is liable for 80 percent of spending, the budget said.

But the proposed change would place the liability more heavily on beneficiaries, Carpenter said.

“While not counting manufacturer discounts toward patient out-of-pocket costs in Part D is a saver for the government, it will increase cost sharing for Medicare beneficiaries,” she said.

To contact the reporter on this story: Mindy Yochelson in Washington at myochelson@bloomberglaw.com

To contact the editor responsible for this story: Kendra Casey Plank at kcasey@bloomberglaw.com

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