Prescription Drug Rebates On The Rise

Trump administration to eliminate safe harbors for drug rebates to PBMs |  Fierce HealthcareSource: Axios, by Tina Reed

Prescription drug rebates from drugmakers to commercial health plans are steadily increasing, a study published in JAMA Health Forum shows.

Why it matters: This is all part of a system in which drugmakers negotiate to get their product on the formularies of middlemen known as pharmacy benefit managers and health plans.

  • * “While drug rebates can reduce plans’ net costs, rebates do not reduce patients’ cost sharing,” the authors write.

This can ultimately “incentivize drug manufacturers to inflate list prices and PBMs to distort drug formularies to favor high list price and high-rebate therapies,” the authors write.

What they’re saying: This is also an equity issue, particularly for patients buying individual plans.

  • * “We have the sick people paying more than their fair share for the drug and the rebate goes back to the plan to reduce premiums for the healthy,” said Ge Bai, a professor of accounting at Johns Hopkins Carey Business School who was one of the authors of the study.

What to watch: Trump era rules to block rebates for Medicare stalled under the Biden administration.

  • * But the issue has been gaining attention on Capitol Hill, with a bipartisan group of lawmakers pushing to outlaw rebates as part of legislation that would cap the price of insulin, FierceHealthcare wrote.

No End in Sight for Escalating Prescription Drug Spending


Prescription drug costs are rising more than 10% a year, which is twice the rate of medical costs increases according to an A.M. Best report. Retail prescription drug spending grew 12.2% in 2014 compared to 2.4% in 2013. Driving the rising costs are increased spending for new medications, such as specialty drugs for Hepatitis C; patents that expired, price increases for brand name drugs, and higher health plan enrollment due to the Affordable Care Act (ACA). Drug spending from private health insurance, Medicare, and Medicaid accelerated in 2014. These costs have affected insurers. Also consumers are paying more out-of-pocket costs.

The increase in drug costs has become divergent to other health care costs. In 2014, U.S. health care spending increased 5.3% to reach $9,523 per person. The cost growth was primarily due to major coverage expansion under the ACA, particularly for Medicaid and private health insurance. The share of the economy devoted to health care spending in 2014 was 18.1%, up from 17.5% in 2013.

The medical loss ratio (MLR) remained relatively flat from 2010 through 2013 in the low 80 percentages before a decline in the past two years to around 75%. But the MLR was more than 10 basis points higher in 2010 to 2015 when prescription drugs were included.

CMS Proposes to Test Value-Based Payment Strategies for Part B

The Medicare Rights Center sent a letter CMS in support of its proposal to test value-based payment strategies for prescription drugs under Medicare Part B. According to CMS, the Part B prescription drug reimbursement model establishes a perverse incentive to prescribe higher cost medication. The reimbursement is determined by average-sales price plus 6%. CMS wants to test a variety of innovations, many of which are in use in the private insurance market. The new methods are designed to promote the most clinically effective medications, not the most expensive. CMS wants to test multiple strategies that encourage the use of high-value medications, especially those that eliminate or lower cost sharing for beneficiaries and promote evidence-based clinical decision support tools.

Joe Baker, president of Medicare Rights said, We’re confident that CMS’ proposed payment model will preserve beneficiary access to needed prescription drugs while advancing innovative strategies to ensure
that people who need Part B medications receive the highest value care available to them. We believe the proposal can yield results meaningful to today’s beneficiaries through enhanced care quality, and to future generations, through a stronger and more sustainable Medicare program.”

The Future of Drug Therapies

When it comes to prescription drugs, patients will get more bang for their buck in 2020. They will have unprecedented treatment options, greater access to low-cost drugs, and better use of evidence to inform decision making, according to a study by the IMS Institute for Healthcare Informatics. More than half of the world’s population will live in countries where medicine use will exceed one dose per person per day by 2020, up from 31% in 2005. The medicine use gap between developed and emerging markets narrows. Total spending on medicines will reach $1.4 trillion by 2020 due to greater patient access to chronic disease treatments and breakthroughs in drug therapies. Global spending is forecast to grow at a 4% to 7% compound annual rate over the next five years.

Murray Aitken of IMS Health said, “During the next five years, we expect to see a surge of innovative medicines emerging from R&D pipelines and technology-enabled advances that will deliver measurable improvements to health outcomes. With unprecedented treatment options, greater availability of low-cost drugs, and better use of evidence to inform decision making, stakeholders around the world can expect to get more bang for their medicine buck in 2020 than ever before.

More than 90% of U.S. medicines will be generics by 2020. Spending on medicines in the U.S. will increase 34% over 2015. Prices for protected brands will remain constrained by payers and competition, resulting in 5% to 7% annual price increases. The Affordable Care Act (ACA) will continue affect drug spending during the next five years largely due to expanded insurance coverage. By 2020, there will be broad adoption of ACA provisions that encourage greater care coordination and movement of at least one-third of spending to an outcomes or performance basis.

More than 225 medicines will be introduced by 2020, with one-third focused on treating cancer. Disease treatments in 2020 will be transformed by the increased number and quality of new drugs in clusters of innovation around cancer, hepatitis C, autoimmune disorders, heart disease and an array of rare diseases. During the next five years, 75 new orphan drugs are expected to be available for dozens of therapeutic areas that have limited or no treatment options. By 2020, technology will enable more rapid changes to treatment protocols, increasing patient engagement and accountability, shifting patient-provider interaction, and accelerating behavior changes that improve patient adherence to treatments. Every patient with multiple chronic conditions will have the potential to use wearables, mobile apps, and other technologies to manage their health, interact with providers, fellow patients and family members. The universal use of personal devices, electronic medical records, and real-world data will offer providers and payers new ways to control costs

Consumers Face Obstacles in Understanding Prescription Coverage

Consumers Face Obstacles in Understanding Prescription Coverage
Consumers find it frustrating and time consuming to get information about their prescription drug benefits, according to a report by the California HealthCare Foundation (CHFC). CHFC surveyed consumers as well as agents and enrollment counselors. Publicly posted formularies are hard to navigate. They often feature arcane terminology, provide incomplete and inaccurate information, and are not available in languages other than English.

Many consumers don’t think of checking whether their medications are covered before selecting a health plan. But those who seek this information have a hard time finding it. Participants say that prescription benefit information is not prominent on plan websites or on the Covered California website. Many participants say that it took multiple clicks to locate a company’s formulary, if they were able to find it. Most were unable to find all the information they wanted, and resorted to calling each plan under consideration to check whether their drugs were covered and get details on their financial responsibility.

In general, consumers are not familiar with many of the terms used routinely in prescription benefit information, such as “formulary,” “prescription drug tier,” “co-insurance,” and “preferred drug” versus “non-preferred” drug. Consumers want materials that are written in more common, accessible language. The following are more key findings:

  • Consumers have little awareness of how to request medications that are not on a plan’s formulary.
  • When shopping for health insurance, drug benefits take a backseat. Consumers base their health plan choices on monthly premiums, physician access, and out-of-pocket costs, such as deductibles and copays for physician office visits.
  • Consumers have often assumed that their drugs would be covered so they didn’t double-check their availability or potential cost.
  • Neither agents nor counselors routinely help clients conduct drug benefit searches. Agents in the study say that it is too time-consuming to be profitable while counselors say they have limited familiarity with the process.
  • Study participants reviewed online formulary search tools. The Colorado Health Plan Finder tool is well-received among consumers and agents because it offers filters to refine plan options. Shoppers can view only plans that cover their drugs. It also displays the copays. Participants said that it allowed them to figure out what they would be spending monthly on prescriptions.
  • Information throughout the Covered California website was consolidated into a table to clarify relationships among prescription coverage and metal tier options. Agents say that having the information presented this way is useful when explaining drug costs to clients. Consumers are split on whether they could understand all elements of the table.

Respondents offered the following suggestions:

  •  Have an online tool with drug cost and coverage information, by plan. An interactive Internet formulary search tool would allow consumers to input drug names. Results would include details, such as cost and tier placement for each plan.
  •  Health plan websites should consolidate drug benefit information under a clearly labeled tab that’s easy to find with a minimum number of clicks.
  • A formulary should specify whether it is for individual or group plans or those included or excluded from Covered California.
  • Consumer education should address the differences among formulary designs. There should be particular attention to educating consumers on how to appeal medication denials and seek redress of other prescription drug coverage issues. Enrollment counselors want additional education on prescription benefits.
  • Use the term “prescription drug list” instead of “formulary.”
  • Drug categories should include understandable terms like “high blood pressure” instead of “hypertension.” Other suggestions are to standardize formulary terms and abbreviations to make comparisons less confusing.
  • Display copay information with tier placement, the cost of monthly prescriptions, the difference between branded drugs and generics, information on step therapy, the appeals process, and a list of pharmacies.

Medicare Prescription Savings Through the ACA

The average person with traditional Medicare will save $5,000 from 2010 to 2022 thanks to the Affordable Care Act, according to an HHS report. Also, because of the health care law, more than 5.5 million seniors and people with disabilities saved nearly $4.5 billion on prescription drugs since the law was enacted. Seniors in the Medicare prescription drug coverage gap known as the “donut hole” have saved an average of $641 in the first eight months of 2012 alone. This includes $195 million in savings on prescriptions for diabetes, over $140 million on drugs to lower cholesterol and blood pressure, and $75 million on cancer drugs so far this year. Also in the first eight months of 2012, more than 19 million people with original Medicare got at least one preventive service at no cost to them.

In 2010, anyone with Medicare who hit the prescription drug donut hole got a $250 rebate. In 2011, people with Medicare who hit the donut hole began receiving a 50% discount on covered brand-name drugs and a discount on generic drugs. These discounts and Medicare coverage gradually increase until 2020, when the donut hole will be closed.

Because of the Affordable Care Act, many preventive services are now offered free to beneficiaries (with no deductible or co-pay). In 2012 alone, 19 million people with traditional Medicare have got at least one preventive service at no cost to them. This includes 1.9 million who have taken advantage of the Annual Wellness Visit provided by the Affordable Care Act – almost 600,000 more than had used this service by this point in the year in 2011. In 2011, an estimated 32.5 million people with traditional Medicare or Medicare Advantage got one or more preventive benefits free of charge. For state-by-state information on savings in the donut hole, please visit:

Medicare Prescription Drug Premiums Remain Steady

Average basic premiums for Medicare prescription drug plans are expected to remain constant in 2013, announced HHS secretary, Kathleen Sebelius. The average monthly premium for basic prescription drug coverage is expected to be $30 in 2013. Average premiums were $29.67. Since the law was enacted, seniors and people with disabilities have saved $3.9 billion on prescription drugs as the Affordable Care Act began closing the donut hole coverage gap.

The projection is based on bids submitted by drug and health plans for basic coverage during the 2013 benefit year and calculated by the Centers for Medicare & Medicaid Services (CMS) Office of the Actuary.
Coverage for brand name and generic drugs in the coverage gap will increase over time until 2020, when it will be fully closed. This year, people with Medicare got a 50% discount on covered brand name drugs and 14% coverage of generic drugs in the donut hole. In 2013, Medicare Part D coverage will begin to increase for brand name drugs, meaning that people with Medicare will receive a total of 52.5% off the cost of brand name drugs

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Last Updated 05/25/2022

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