The bubble directly affects patients’ out-of-pocket costs. Many patients now have benefit plans with deductibles and are therefore required to pay the full, undiscounted cost of their prescriptions. Patients taking specialty drugs face large coinsurance computed using the undiscounted list price.
One solution replaces formulary payments made to plan sponsors with prescription discounts for patients at the point of sale (POS). Last week, CVS Health became the first pharmacy benefit manager (PBM) to publicly embrace and explain this alternative benefit design. See below for details.
Which makes me wonder: Do point-of-sale rebates solve the patients’ problems that the gross-to-net bubble causes? And will this benefit design mark the beginning of the end for the PBMs’ traditional economic model?
THE GREAT REBATE DEBATE REDUX
In New Data Show the Gross-to-Net Rebate Bubble Growing Even Bigger, I document how the total value of pharmaceutical manufacturer’s off-invoice discounts, rebates, and other price concessions grew to $127 billion in 2016.
What happened to those rebates?
Some portion was shared directly with patients in the form of lower out-of-pocket costs for prescriptions.
But I suspect a majority flowed back to plan sponsors, which used the funds to reduce premiums and offset other healthcare costs. A sponsor could theoretically use those rebate payments to offset costs in any area, including hospital and physician payments. PBMs also retained a portion of those rebates as their profits.
Unfortunately, consumers with deductibles and coinsurance did not benefit directly from these rebates. The problem is especially acute for patients taking specialty drugs. Those patients can face economically debilitating coinsurance—in some cases with no limit on out-of-pocket expenses. Since manufacturer rebates do not get passed through to the point of sale, the coinsurance is based on the drug’s list price.
This reality drives PhRMA’s new Share the Savings campaign, which argues that negotiated discounts for medicines are not shared with patients with high deductibles or coinsurance.
Last September, I asked the following question in EpiPen, Channel Economics, and the Great PBM Rebate Debate:
EpiPen's economics raises a legitimate point in an era of high deductibles: Did your insurance company get a rebate on the EpiPen for which you paid full retail price?WHOSE MONEY IS IT?
Last week, CVS Health addressed this question in Consumer Transparency: Helping Members with High-Cost Drugs at the Point of Sale. The white paper describes a benefit design in which rebates reduced patients’ out of pocket costs when the prescription is filled.
CVS Health builds its argument around high deductible health plans (HDHPs). It provides the following useful example in which the patient pays the full prescription price of $250 while the plan gets a rebate and “makes” $100.
[Click to Enlarge]
In theory, the $100 rebate could be shared with the patient when the prescription is filled. In that case, the patient’s cost would be $150 and the plan’s cost would be $0. Sounds simple, right?
Alas, the plan now loses the $100 that it had been using to offset premiums and other spending. Therefore, plan sponsors would pay higher premiums to maintain the same overall cost-share structure in the plan. The white paper provides an example in which a 180,000-member plan would have to raise premiums by 3% to offset the rebates that would go the member instead of the plan.
This tradeoff is analogous to the controversy over Direct and Indirect Remuneration (DIR) fees. These fees are primarily comprised of manufacturer rebates to Medicare Part D plans. DIR fees reduce plan costs and Part D premiums. However, beneficiaries pay higher out-of-pockets costs, because coinsurance amounts are based on the undiscounted, pre-rebate retail price. See DIR Fees, Rebates, Pharmacy Economics, and the Future of Medicare Part D.
FYI, Express Scripts offers a POS benefit design called SmartShareRx. The company tells me that few clients have chosen to share rebates directly with patients. That said, it doesn't appear that Express Scripts is actively marketing this solution. My Google search for "SmartShareRx" turned up zero results.
BLACK SWAN AHEAD?
CVS Health’s white paper implies that a switch to POS rebates will require only a few actuarial math tweaks. But the reality is more complex.
A major barrier is health plans and employers, both of which have baked ever-growing rebate dollars into their healthcare economics. I suspect that rebate dollars are now concentrated with a relatively small number of products and therapeutic categories. Fixing the out-of-pocket cost problem for a few patients will raise costs for everyone else—or for the plan.
That’s why POS rebates have started to gain traction wherever there is no third-party payer. Consider Inside Rx, the new Express Scripts-GoodRx drug discount partnership. The program provides point-of-sales discounts to uninsured patients on about 40 brand-name drugs.
Both CVS Health and Express Scripts have recently stated that they retain about 10% of rebate payments. The remainder is passed back to their clients. Though CVS Health doesn’t say so in the paper, it appears to believe that a PBM’s economic arrangements with its plan sponsor client would remain unchanged if rebates migrated from (1) after-the fact manufacturer payments to PBMs, to (2) discounted prices offered to patients at the pharmacy counter.
CVS is presumably gambling that it can retain the equivalent dollar value of those percentage-based payments. I’m more skeptical, because the transparency associated with POS rebates could become the trigger for the drug channel’s black swan event—a la Scott Gottlieb’s Radical Idea for Disrupting U.S. Drug Channels.
I once posed a Drug Channels Zen koan for you: When does a price increase not increase the price? (One answer: When a third-party pays for a prescription drug.)
Today’s koan: If a rebate paid to a PBM makes no sound, what is the sound of a rebate being passed through to the patient?
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