September 24, 2019

New Independent Government Reports Demonstrate the Value of Pharmacy Benefit Managers and Prescription Drug Rebates to Medicare Beneficiaries

Jeremiah McCoy

Last week the HHS Office of Inspector General (OIG) published a report, in response to a request from Congress, analyzing the relationship between rebates for certain brand-name prescription drugs reimbursed by Medicare Part D and their associated costs. OIG found that rebates for brand-name drugs in Part D substantially reduced the growth in program spending from 2011 to 2015.

Specifically, OIG examined 1,510 brand-name drugs with Part D reimbursement which also provided rebates every year from 2011 to 2015. After adjusting for the negotiated rebates, total reimbursement for the drugs examined increased by $2 billion over a five-year period, or a 4% increase. However, OIG found that without rebates, the total Part D reimbursement for these drugs would have increased by 19% over the same period. This strongly suggests that rebates play a critical role in controlling the growth in prescription drug prices.

Moreover, 42% of the drugs in their analysis saw decreased rebates over the same period.

This analysis follows a recent Government Accountability Office (GAO) report which found that pharmacy benefit managers (PBMs) passed virtually all (99.6%) of their negotiated prescription drug rebates to plan sponsors which GAO emphasized were then used to lower and stabilize costs for Medicare beneficiaries. In fact, GAO explicitly noted that because of PBM-negotiated rebates, Part D spending was kept 7% lower than without rebates.

These findings are particularly relevant to the current debate on how to reduce prices for prescription drugs. The GAO report highlights the important role of negotiated rebates in stabilizing Part D program costs, and clearly makes the point that rebates are used by plan sponsors to stabilize premiums for beneficiaries. In addition, the OIG findings contradict the drug industry’s claims that Medicare Part D spending on brand-name drugs is increasing because of rebates, and instead finds the opposite to be true—rebates have helped to slow that growth. Going forward, the drug industry will find it harder to argue that negotiated prescription drug rebates are the source of the country’s prescription drug spending problem.

Medicare Advantage-Part D plans and standalone Part D Prescription Drug Plans deliver value by negotiating lower drug prices directly with drug manufacturers on behalf of consumers through the use of rebates. Because of these tools, the average Part D premium has decreased by 13.5% in the last three years, from $32.70 in 2017 to an estimated $30 in 2020, marking a $1.9 billion savings for Medicare beneficiaries over that same period of time.

These are certainly lessons to apply to the current discussion of drug pricing.

For more information on prescription drug pricing, please view BMA’s issue brief on the Medicare Part D program and our research on how the elimination of rebates would harm Medicare Advantage beneficiaries.

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