Yes, it’s time to kill drug rebates

The Trump administration’s proposal to eliminate drug rebates would be a transformative change on par with the deregulation of telephone companies many years ago. It will dramatically change the dynamics in the pharmacy benefit management and drug industry.

The proposed rule, released Thursday, lowers prescription drug prices and out-of-pocket costs by encouraging manufacturers to pass discounts directly on to patients.

Drug rebates were initially intended to improve market competition by forcing pharmaceutical manufacturers to compete for market share. Instead it led to a market focused more on rebates than drug value. The result: Inflated prices of prescription drugs for many consumers since they rarely benefited from the cost savings of the rebates. As importantly, it also has led to lack of transparency and an increasingly dysfunctional market for employer plan sponsors.

The proposal by the Department of Health and Human Services Secretary Alex Azar and Inspector General Daniel Levinson compliments efforts in the “American Patients First” blueprint to reduce drug prices, and would have an immediate impact on drug pricing and a disruptive effect on the market.

Alex.Azar.Bloomberg.2.1.19.jpg
Alex Azar, secretary of Health and Human Services (HHS), speaks during a meeting in the Cabinet Room of the White House in Washington, D.C., U.S., on on Wednesday, Jan. 2, 2019. U.S. President Donald Trump insisted the U.S. needs some kind of physical barrier along the frontier with Mexico, just a few hours before a meeting with congressional leaders aimed at breaking a stalemate over border wall funding that’s kept parts of the federal government shut down for 12 days. Photographer: Al Drago/Bloomberg

Benefit industry and employer groups been vocal about the need for more specific policy proposals to lower the high cost of drugs and make a greater impact to those footing the bill. We have mobilized to wring out the impact of poor quality, unwarranted cost, complexity and conflicts through our Drug Policy Advisory Group made up of purchasers and coalition leaders across the country, and informed by stakeholders across the industry. As a result, we’ve established purchaser policy reform principles to be used in consideration of the administration’s drug policy blueprint.

Of those principles, two are directly addressed by the administration’s proposal to eliminate drug rebates, which is a major step forward — full transparency as purchasers need to understand direct and indirect costs and cost offsets of each drug, and no conflicts of interest so that intermediaries act in the best interest of the benefit plan’s limited resources.

There are three additional principles that we’d still like to see more fully addressed in the administration’s strategy:

  • Pricing equity. We need better worldwide pricing equity for all U.S. purchasers — not just Medicare. This proposal only applies to U.S. purchasers.
  • Defined value. Consider individualized appropriateness, real world outcomes and relative costs against other treatment options. This proposal would only improve the market’s focus on real value rather than rebates.
  • Competitive market dynamics. As patent protections expire, policy must better enforce and support a competitive market.

We are supportive to an alternative to the rebate-driven approach to managing drug costs and all efforts to rationally put the brakes on this runaway train of drug costs. We encourage employer purchasers to be involved and engaged in these discussions. Allowing for a thoughtful transition will be critical, but this would be a substantive down payment on comprehensive drug pricing reform.

For reprint and licensing requests for this article, click here.