New research published in JAMA Health Forum found that rebate revenue for PBMs grew between 2015 and 2019 — but that growing rebate revenue was not passed on to patients.
The research letter’s authors measured both prerebate and postrebate drug costs taken from medical loss ratio (MLR) filings made by plans to CMS. The research sample includes commercial insurance filings from small group, individual and large group health plans across “approximately 2,200 unique health plans” covering 70 million lives.
According to the research, “median prerebate drug cost PCL [per covered life] per year increased by 68.1% (from $734 to $1234) for individual plans, 44.9% (from $752 to $1090) for small group plans, and 23.9% (from $791 to $980) for large group plans, while median postrebate drug cost PCL per year increased by 54.5% (from $644 to $995) for individual plans, 24.0% (from $642 to $796) for small group plans, and only 7.6% (from $686 to $738) for large group plans.”
Ge Bai, Ph.D., a professor at Johns Hopkins University’s schools of business and public health, tells AIS Health, a division of MMIT, that there are two key insights from the research.
“My first takeaway is there is variation across markets,” Bai says, referring to the different amounts of rebate retention across the small group, large group and individual markets. “That’s something totally new — nobody has ever documented that before.”
“The second takeaway, to me, is this increasing gross-to-net bubble. That’s across the board…you see an increase in every market,” Bai adds. “So that tells us the patient’s cost sharing is increasingly detached from the net price.”
Amounts Vary Across Books of Business
Bai suspects the variation in gross-to-net price varies across books because of the high premium costs of the individual market during the years of the study. Premium subsidies for middle-income members buying plans on the individual market weren’t available during those years, making health insurance very expensive for those consumers. The so-called “family glitch” created a similar problem. Those problems have been fixed by temporarily enhanced funding for premium subsides passed by Congress, but those subsidies are set to expire at the end of this year.
“The ACA has all kinds of regulations that apply to the individual market. [That’s] not in the large group market,” which “hikes up” drug plan premiums relative to the large group market. “Because of the increased premiums, many healthy people decide not to get coverage. They go insured, which deteriorates the risk pool.”
Bai also has a theory about the disparity between pre- and post-rebate prices. She says that, as drug manufacturers compete for their product to be the preferred treatment in a PBM’s formulary, they offer PBMs sweeteners.
“There’s fierce competition for some therapeutic classes that have more than one therapy. If there’s a therapy that doesn’t really have competition, there’s no reason for a manufacturer to offer rebates. But in many classes, we do have fierce competition. So in order to be in position in a large PBM’s formulary — or any PBM’s formulary — drug manufacturers must offer rebates. It’s a rebate war. You want to have a high rate [for rebates], because [high rebates are] linked to the PBM’s profits,” Bai says.
Depending on the structure of a PBM’s contract with a plan sponsor, rebate revenue might be passed through to the plan sponsor, which could lower premiums, Bai says. However, the patient paying high out-of-pocket costs for a drug isn’t likely to see any benefit from rebates.
“Rebates reduce premium spending,” Bai says. “PBMs don’t keep everything. They have to send a portion of it to plan sponsors, and plan sponsors use it to reduce premiums. But the problem is the patients who use the drugs have to pay based on the [pre-rebate] list price, which is inflated….Patients who actually take the drugs are picking up more than their fair share of cost sharing.”
The study also points out that PBMs are probably taking in even more in rebate revenue than Bai and her colleagues were able to document. They wrote that “the actual magnitude of rebates in commercial plans is higher than rebate [percentage] estimated in this study” because MLR filings do not include “information…on benefit design and drug utilization, especially on the composition of brand-name drugs vs generics…rebates are almost uniformly directed at brand-name drugs.”
“We don’t really want this kind of bubble going,” Bai adds. “The rebates really add opaqueness and make the whole system less transparent. And it’s not just the drug manufacturers…everybody gains from higher list prices, but those gains don’t go to the patient. It increases total health care spending without adding any innovation.”
Contact Bai at firstname.lastname@example.org.
Growth of Prerebate Prescription Drug Costs Outpaces Postrebate Costs in Commercial Plans
By Jinghong Chen
NOTES: Rebate % was measured as a plan’s total pharmaceutical rebate divided by its total prerebate prescription drug costs. All dollar amounts were adjusted to 2019 values using the Consumer Price Index.
SOURCE: “Trends of Prescription Drug Manufacturer Rebates in Commercial Health Insurance Plans, 2015-2019,” JAMA Health Forum. 2022;3(5):e220888.
This story and infographic were reprinted from AIS Health’s biweekly publication RADAR on Drug Benefits.