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Seniors Win Big With Rebate Rule
Guest Opinion
senior citizen


Guest Columnist

More than half of Americans say they have a hard time affording their prescription drugs.

Luckily for them, the Trump administration recently proposed a rule to criminalize the shady business practices that keep drug prices high for patients at the pharmacy counter. Lawmakers should support the proposal full stop.

The president’s reform takes aim at middlemen in the drug supply chain known as “pharmacy benefit managers” or PBMs. Insurers hire PBMs to negotiate with drug manufacturers and help decide which drugs insurers should cover. This gatekeeper status gives PBMs considerable power to snag big discounts and rebates from drug makers.

In fact, pharmaceutical manufacturers typically offer PBMs major deals, upwards of 30 percent, off the sticker price of their drugs.

But patients derive little direct benefit from these discounts.

Patients expect to owe their insurers “coinsurance,” a fixed percentage of the cost of their medication. But since PBM discounts are hidden, insurers are charging patients more than they should. Rather than owing a percentage of the discounted net price of the drug, patients are charged a percent of the full sticker price at the pharmacy counter.

Say a drug’s sticker price was $100, but a PBM negotiated it down to $60. A patient with a 20 percent coinsurance payment would be required to dish out $20 – or a full third of the price insurers paid – as opposed to $12.

It’s no surprise, then, that patient out-of-pocket spending on coinsurance grew by 89 percent between 2005 and 2015. Overall health plan costs, meanwhile, only grew 57 percent.

In other words, players in the drug supply chain are getting rich while America’s most vulnerable patients continue paying more for their lifesaving drugs.

The Trump administration proposal would end this abuse. It would make it illegal for PBMs to retain any manufacturer rebates within Medicare’s “Part D” prescription drug benefit for seniors and persons with disabilities. Instead of working with PBMs, drug manufacturers would pass these discounts directly to patients.

By one estimate, if just one third of manufacturer rebates were passed to patients, Medicare beneficiaries could save $20 billion in the next decade.

This will help patients stay healthy, too. The lower the patient cost-sharing, the more likely he or she will take his or her medications. And medication adherence prevents costly hospital visits and further health complications down the road.

President Trump’s Part D plan is a great first step. But the government should look for additional ways to crack down on PBM profiteering on all drugs – not just those covered by Medicare.

All participants in the drug supply chain – manufacturers, wholesalers, PBMs, and pharmacies – should be paid based on the value they provide. Right now, middlemen are earning staggering profits by diverting discounts away from the most vulnerable patients.


Peter J. Pitts, a former FDA Associate Commissioner, and is President of the Center for Medicine in the Public Interest. The opinions expressed are those of the author and not necessarily those of this paper or its corporate ownership.