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that all options could increase overall net costs.”
Here are the paper’s three alternative scenarios to replace the current system, and a brief, incomplete summary of the potential pros and cons suggested by the paper’s authors. (Download the paper here for a full discussion.)
—100 percent of rebates are passed through to insurers and employers (“plan sponsors”). PBMs would only be paid flat fees for their negotiating services.
Pros: Drug makers would have less incentive to raise list prices to give themselves more room to negotiate downward with PBMs. Insurers would have more clarity about PBM services, perhaps even spurring more PBM competition for insurers’ business. If PBMs are paid with a flat fee-for-service, it could also spur similar flat fees for others in the supply chain, like pharmacies, “helping to wean the entire drug delivery chain off its reliance on rebates and percentage fees,” the authors write.
Cons: PBMs might game the system by renaming rebates by a new term, like “fees.” Also, rebates flowing back to insurers won’t help patients if they don’t benefit by receiving lower copays. Stripped of the added profit that rebates accrue, PBMs might not fight as hard to negotiate lower prices for their customers. They also might lose leverage with the drug companies.
—Customers receive a rebate at the point of sale, like when they pick up a prescription at the pharmacy. (This is the Trump administration’s proposal.) As noted, some private health plans have already begun offering point-of-sale rebates.
Pros: Lower costs for patients who take expensive medicines for chronic conditions. More affordable medicine could also mean more adherence to a drug regimen—and better health outcomes.
Cons: Money that flows back to the patient would mean less money that insurers could apply to lowering premiums. In fact, some observers worry that losing this revenue could spur insurers to raise premiums, negating the positive effect of lower copays. Even with rebates, patients, such as those with high deductible plans, could still fall short of hitting out-pocket-maximums.
—Rebates are replaced by upfront discounts. Instead of a secret rebate that a drug maker pays to the PBM based on downstream sales, a discount would be open and negotiated before the drug products move down the supply chain.
Pros: A major piece of our healthcare costs becomes transparent. More transparency means the cost-effectiveness of drugs can be more easily measured, which in turn could lead to a more rational pricing structure. Health providers could more easily include cost-effectiveness into their prescription discussions with patients.
Cons: Transparency could also lead to less leverage for payers, possibly opening the door to collusion among drug makers. There might be antitrust complications. Eliminating retroactive rebates could also undermine outcomes-based contracts. In these agreements, a drug maker foregoes part or all of the sale price if the drug doesn’t work as expected. See this high-profile example.
ICER’s new rebate paper is a synthesis of discussions held with drug, insurance, and PBM executives who pay membership fees to ICER and who gathered for a private meeting in December. ICER says it is responsible for the final content.
By contrast, ICER’s reports on specific drugs or drug classes are funded by non-profit foundations “and other sources that are free of conflicts of interest from the life science industry or insurers,” the organization says on its website.