Is There an Alternative to PBM Rebates? ICER Paper Examines 3 Options

With discussion and debate happening for months in Washington, DC, over drug pricing and the role of pharmacy benefit managers (PBMs), the Institute for Clinical and Economic Review (ICER) published a white paper this week that analyzes 3 possible alternatives to the pharmaceutical rebate system fostered by PBMs.

The paper, “Value, Access, and Incentives for Innovation: Policy Perspectives on Alternative Models for Pharmaceutical Rebates,” cautions that abrupt change could have unintended consequences, even as nearly all players understand that change is coming. For instance, this week, UnitedHealthcare said it will expand its drug rebate program that passes rebates from drug makers directly to patients.

In January, HHS proposed a rule to exclude rebates from safe harbor protections that currently shelter drug makers’ rebates from federal kickback penalties and reduce patients’ out-of-pocket costs for prescription drugs; instead, the rule suggests that discounts be directly turned over to patients enrolled in Medicare and Medicaid. That idea is one of the options ICER examined.

ICER evaluated all 3 options against 7 criteria:

• Impact on patients’ affordability, access to care, and clinical outcomes (via improved adherence)
• Impact on overall cost of pharmaceuticals and medical spending
• Impact on competitive outlook for innovative new medicines
• Ability to support outcomes-based contracting and indication-specific pricing agreements
• Impact on efforts to design formularies based on cost-effectiveness of pharmaceuticals
• Feasibility of implementation
• Ability to improve transparency of costs to support public dialogue on value and affordability

The first 2 options—passing all rebates on to insurers, or sending them all to the patient at the point of sale (POS)—could be used alone or together, ICER said. They also represent the least drastic of the 3 options.

Under the first option, insurers would pay fees to PBMs in an attempt to end the current incentive for PBMs to develop restrictive formularies that include highly rebated drugs despite higher net costs for payers.

However, a possible problem is that new “fees” could be developed that would create the same effect. Therefore, ICER said, real change would take place only if this option were implemented alongside transparent contracting.

Some states have started demanding this type of transparency, for example, in their Medicaid pharmacy contracts.

The second option would require some part of the rebates to be shared with patients at the POS, as UnitedHealthcare plans to do. However, providing POS rebates would require releasing confidential information to patients that inadvertently discloses the gross-to-net price gap, thus eliminating confidentiality of the rebate level and undermining the negotiating power held by payers through their ability to get confidential rebates.

The first option, the pass-through model, could be combined with the second option. ICER noted that a 100% pass-through model will be most effective; patients might see the most benefit from this model if their cost sharing is linked to list price (which could lead to better adherence and outcomes), because with less incentive for higher rebates, list prices and the gross-net gap may fall.

In the second model, giving some POS rebates to individual patients that would have otherwise gone back to the insurer means the insurer would not have the option to use those funds to cut premiums. As a result, even if individual costs drop at the pharmacy level, the rest of the country could see higher premiums.

The third option would end rebates altogether, moving exclusively to a system of upfront discounts. This is what the Trump administration is trying to do with its plan to end rebates in Medicare Part D. However, this strategy would require a change to the payment structures for wholesalers and pharmacies, would require technology investments, and it could face legal challenges. A chargeback model would likely have to be implemented, under which manufacturers and wholesalers could coordinate pharmacy reimbursement based on compiled reporting or prescription claims records.

The first 2 options would either have no effect on competition or on the ability to create value-based formularies, or it would be more complicated to do so, the paper said.

ICER put the report together through 10 interviews with various stakeholders, a literature review, and looking at the public comments regarding HHS’ drug pricing blueprint. ICER performs analyses on the effectiveness and costs of medical tests, treatments, and delivery systems; develops reports assessing the value of key new drugs; and creates initiatives that use evidence to drive changes to both practice and policy.