- The pharma industry's practice of setting a list price for drugs and then discounting the cost through rebates and discounts may be increasing Medicare and patient out-of-pocket spending in ways that benefit Part D plan sponsors and drugmakers, suggests research published in JAMA Internal Medicine Tuesday.
- A widening gap between list prices and lower net prices, coupled with an increasing number of patients paying for prescriptions through coinsurance, has effectively increased the cost burden on Medicare and its beneficiaries for drug coverage, the paper's authors argue.
- The research helps shed some light on the complicated effects of an opaque pricing system, one which has hindered efforts to find a straightforward solution for rising prescription drug prices.
Castigated for the high price tags on some of their products, drugmakers often argue that list prices (also known as wholesale acquisition costs) don't reflect the true cost of a drug, pointing to the rebates and discounts given to payers in return for favorable coverage.
While list prices for drugs are disclosed and known, the net price charged to each insurer or plan sponsor is not. This has given drugmakers a ready-made shield to defend against public criticism of the often eye-watering annual cost for many specialty drugs.
Major trade association PhRMA, for instance, recently rolled out a campaign titled "Share the Savings," which accuses insurers and other payers for failing to pass on the rebates and discounts received from drugmakers to consumers.
Industry groups representing payers have fired back, arguing the simplest way to lower costs would be for pharma companies to just lower prices in the first place. In the eyes of payers, rebates and discounts lower premiums for all plan members across the board.
The newly published paper, though, shows how — at least for Medicare Part D — the practice of rebating might help boost the profits for both plan sponsors and drugmakers.
Patients covered by Medicare Part D plans pay a certain percentage of drug costs out of pocket, a share that changes depending on total drug spending. Under the 2017 standard benefit, a patient is responsible for 100% of a drug's cost while in the deductible, 25% during initial coverage until to the total amount spent hits $3,700. After that point, the manufacturer is required to discount the cost by 50% and the patient pays the rest — the so-called donut hole or coverage gap — until catastrophic coverage kicks in at $8,071.
Those percentages are calculated base on a drug's list price, however, rather than the lower net price the drugmaker negotiates with a plan sponsor. A higher list price, even with substantial rebates, means patients more quickly reach the catastrophic phase of coverage, where Medicare picks up 80% of the tab (plans pay 15%, the patient 5%).
In the background of all this, an increasing number of patients are paying for prescriptions through coinsurance. The authors cite research show the proportion of drugs covered through coinsurance in Part D increased from 35% in 2014 to 58% in 2016.
The impact of rebates on spending can be more clearly seen in an example presented in the paper, comparing out-of-pocket costs for Gilead's Harvoni (ledipasvir/sofosbuvir) to Merck's Zepatier (elbasvir/grazoprevir), two treatments for hepatitis C.
Harvoni, approved in the U.S. first, costs nearly $95,000 a year at list price, but is often discounted substantially through rebates to payers. Merck, entering the market later, priced Zepatier competitively at just under $55,000.
When all is said and done, both drugmakers may receive a more similar net price than their widely different list prices. But because of Harvoni's higher list price, a patient covered under Medicare part D would pay $6,995 out of pocket, compared to only $4,991 for Zepatier, the researchers conclude.
Lack of readily available information on rebates for individual drugs hampers the formulation of potential policy solutions. But the paper proposes shifting away from coinsurance and towards flat copayments tiered by formulary placement. Point-of-sale rebates, where the cost of a drug for a patient is calculated based on the net price, could also be a fix — albeit one that would likely trigger fierce pushback from industry.