ICER Paper Analyzes 3 Options to Overhaul Pharmaceutical Rebates

Patients using expensive specialty medications, such as those that treat inflammatory diseases, are particularly impacted by pharmacy benefit manager (PBM) rebates, given the relationship of rebates to price. In the case of biosimilars, rebate strategies may lead to reference biologics being placed on preferred formularies in the United States while less expensive options are kept off the formulary.

Noting those points, a 48-page white paper from the Institute for Clinical and Economic Review (ICER) discusses possible alternatives to the pharmaceutical rebate system that currently exists with PBMs. The paper, “Value, Access, and Incentives for Innovation: Policy Perspectives on Alternative Models for Pharmaceutical Rebates,” discusses 3 alternative options to the current rebate model, along with their respective pros and cons.

The paper cautions that while nearly all players realize 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—abrupt change could have unintended consequences.

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 by blocking rebates and discounts given to PBMs, Part D plans, and Medicaid managed care organizations. Instead, the rule would encourage that discounts be turned directly over to patients. The Pharmaceutical Care Management Association, the PBM industry association, is actively campaigning against the idea.

Therapeutic areas with substantial rebates include drugs for diabetes and immunologic agents used for conditions such as rheumatoid arthritis and psoriasis. Rebates are also more common in categories with significant competition among branded drugs, especially when the drugs have similar mechanisms of action and few or no differences in risks or benefits. In addition, in the case of biosimilars, some manufacturers of reference biologics contend that these newer therapies cannot get preferable formulary placement over existing leading drugs. The older drugs have multiple indications and billions of dollars of sales, which in turn generate substantial rebates, meaning that payers would lose money by switching.

ICER, an independent, nonprofit organization that seeks to improve healthcare value by providing comprehensive clinical and cost-effectiveness analyses of treatments, tests, and procedures, conducted a literature review and evaluated written responses to the HHS blueprint on drug pricing. They also held 10 interviews with representatives from PBMs, public and private payers, manufacturers, academics, benefit consultants, and trade associations.

The first 2 alternatives ICER presents represent some adjustments to and tweaking of the current system and may be implemented alone or together. The third, more transformative option, would end rebates altogether, moving exclusively to a system of upfront discounts.

All 3 options were evaluated against the following 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

Under the first option, PBMs would be paid only through fees from insurers in an effort to end the incentive for PBMs to develop restrictive formularies that favor highly rebated drugs despite higher net costs for payers. However, one possible pitfall is that new “fees” could be developed that would create the same effect. Therefore, the paper said, only if this option were implemented alongside transparent contacting would any real change take place.

The paper notes 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 decline.

A 100% pass-through model could be combined with the second option, which would require some proportion of rebates to be shared with patients at the point of sale (POS), as UnitedHealthcare plans to do. The issue with this option is that providing POS rebates would require providing information to patients that inadvertently discloses the gross-to-net price gap, eliminating confidentiality of the rebate level and undermining the negotiating power held by payers through their ability to get confidential rebates.

In addition, 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 lower premiums. As a result, the broader population could see higher premiums even if individual costs fall at the pharmacy level.

The third option, ending rebates and moving to upfront discounts, is what the Trump administration is trying to do with its plan to end rebates in Medicare Part D. However, implementing this strategy more broadly would require a change to the payment structures for wholesalers and pharmacies, and it could face legal challenged. 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. This would require technology investments, and it may be more difficult for independent pharmacies to quickly adapt to.

The third option is the option that would comprehensively benefit the entry of new biosimilars into the marketplace, however, since discounts would not be linked to market share; in addition, it would be easier to create a value-based formulary based on market share.

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.