Should the Industry Be Worried About Drug Rebates?

From RADAR on Drug Benefits

Recent events are shining a harsh spotlight on PBMs’ practice of collecting rebates from pharmaceutical companies in exchange for preferred placement of drugs on their formularies. While FDA Commissioner Scott Gottlieb wondered whether it would be possible for the federal government to re-examine the current safe harbor for drug rebates under the federal anti-kickback statute, some industry analysts are not convinced such a policy change could happen.

Even if the government did remove safe-harbor protections for rebates, some doubt it would make much of a difference. "I don’t think that necessarily changes the dynamics of the game because ultimately, if you’re just negotiating to have preferred placement on a formulary, you could do that in exchange for deeper discounts," says Joana Nassa at Mercer.

PBMs are serving two customers — being paid both by manufacturers for getting on formularies and by plans for managing their drug benefit. This makes it unclear who they’re actually aligned with.

RBC Capital Markets, LLC analyst George Hill wrote that it would likely require an act of Congress to change how insurers and other third-party payers interact with PBMs. The most likely outcome is for the government to make small changes to the rebate model such as adjudicating rebates at the point of care to "alleviate a pain for some patients."

Nassa suggests that there might be a change coming with regard to rebates, and even drug manufacturers seem to think so. Derek Asay, senior director, government strategy and federal accounts, managed healthcare services for Lilly USA, LLC, said that "this kind of high-price, high-rebate model is going to start to go away."

The reason, he said, is the considerable growth in health plans that place more cost burden on consumers. "Before we had high-deductible health plans, if you had higher prices and you were giving a large rebate to a payer, nobody really cared," he said. "It matters today because we have a big growth in high-deductible health plans."

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