Monitoring rebates from drugmakers will be critical as provisions of the Inflation Reduction Act are implemented, including drug price negotiations, the Government Accountability Office contends.
Pictured: Medicines on dollar bills/iStock, Julia_Sudnitskaya
While rebates that drugmakers give private insurance plans in exchange for preferred placement over competitors on formularies may lower plan premiums, they don’t reduce beneficiaries’ payments for the drugs, according to a report released Tuesday by the Government Accountability Office.
The GAO report found that rebates have largely gone to a small number of drugs, while insurance plans paid less for highly rebated drugs than beneficiaries.
Beneficiaries spent $21 billion for their Medicare Part D prescription drugs in 2021. However, that same year the private insurance plan providers only accrued a net of $5.3 billion in expenditures, after accounting for the $48.6 billion in rebates that they received from drug manufacturers.
According to the GAO’s analysis, three drug classes dominated this practice in 2021, accounting for 73% of rebates: endocrine metabolic agents such as antidiabetic drugs, blood modifiers and respiratory agents.
Private insurance plan sponsors can negotiate rebates from drugmakers in exchange for securing a spot on the provider’s formulary. Manufacturers, in turn, may offer higher payments for lower beneficiary cost-sharing or a better formulary placement versus its competitors.
While these rebates help lower Medicare spending, they “do not lower individual beneficiary payments for drugs, as these are based on the gross cost of the drug before accounting for rebates,” the GAO concluded in Tuesday’s report. Therefore, these rebates “encourage plans to place higher-gross-cost, highly rebated drugs on their formularies over lower-cost alternatives.”
The GAO recommends that the Centers for Medicare and Medicaid Services (CMS) study how these rebates influence how private insurance plan sponsors design their formularies—and how this, in turn, might affect patients’ access to lower-cost medicines.
By monitoring the effects of rebates, CMS could have “increased visibility into the extent to which rebate and formulary practices are likely to substantially discourage enrollment of certain beneficiaries,” the GAO said, noting that the monitoring of rebates “will be particularly important as the agency implements the provisions of the Inflation Reduction Act of 2022, which will change Part D plan sponsor, beneficiary, and Medicare drug spending responsibility and may affect formulary design and rebates.”
GAO’s Tuesday report comes as the government and the pharmaceutical industry continue to fight over the Inflation Reduction Act (IRA), which according to the congressional watchdog “may change rebate incentives and change the effects rebates have on spending” of Medicare, plan providers and beneficiaries.
Specifically, the GAO said IRA provisions—including those related to drug price negotiation for selected high-cost drugs and limits to beneficiary out-of-pocket spending—may change rebate incentives and change the effects rebates have on formulary design and spending.
Signed into law in August 2022, the IRA seeks to generate some $25 billion in drug cost savings over the next eight years, chiefly by renegotiating the prices for some of the most widely prescribed medications. Last week, the CMS released its list of the first 10 drugs to be subjected to this negotiation program. This includes BMS’s blood thinner Eliquis (apixaban) and Lilly’s diabetes drug Jardiance (empagliflozin).
Pharmaceutical companies have strongly disagreed with the IRA’s Drug Price Negotiation Program, with Merck the first in June 2023 to file a lawsuit that questioned the constitutionality of this provision. It has since been followed by several other large pharma companies such as BMS and AstraZeneca.
Tristan Manalac is an independent science writer based in Metro Manila, Philippines. He can be reached at tristan@tristanmanalac.com or tristan.manalac@biospace.com.
