Payers

What Trump’s proposed drug rebate rule could mean for commercial health plans

On an earnings call, Cigna CEO David Cordani seemed largely nonplussed about the potential rule's impact on the company's bottom line, even after the insurer's blockbuster acquisition of Express Scripts.

U.S. Health and Human Services Secretary Alex Azar threw the healthcare industry for a loop last week after unveiling a long-awaited proposal to ban the rebate deals struck between drug-makers and PBMs for Medicare and managed Medicaid prescription drug plans.

The proposal eliminates any kickbacks or rebates pharma companies pay to PBMs, but would allow for prescription drug discounts offered directly to patients as well as fixed fees paid to PBMs for their services.

The initiative plays into the Trump Administration priority of reducing out-of-pocket drug prices and shift rebate savings to consumers. Drug rebates have been a long-standing target for the Trump Administration, which argues that they artificially inflate prices and keep cheaper medication alternatives from the market.

While the rule only would apply to Medicare Part D programs and Medicaid managed care organizations, Azar has called for its expansion to commercial plans though legislation.

“Congress has an opportunity to follow through on their calls for transparency, too, by passing our proposal into law immediately and extending it into the commercial drug market,” Azar said during a speech at the Bipartisan Policy Center.

That idea has led to vociferous pushback from AHIP, who accused HHS of deflecting blame from drugmakers for high prices. Each of the five largest health insurance companies in the country have an associated PBM, or are developing capabilities to launch one.

“Big Pharma has been working nonstop to deflect attention from outrageously high prices by convincing Americans that health insurance providers and their PBM partners are the problem, acting as so-called ‘middlemen,’” AHIP CEO and President Matt Eyles said in a statement.

“We are not middlemen – we are your bargaining power, working hard to negotiate lower prices with drug makers to save seniors and other patients about 50 percent a year on their prescription drug and related medical costs.”

The stock price of health insurer Cigna, which purchased PBM Express Scripts last year in a huge $52 billion deal was hit after the proposed rule was announced, but Cigna CEO David Cordani seemed largely nonplussed about its ultimate impact on the company’s bottom line.

In an earnings call, Cordani said he believed that the HHS regulation “will not have a meaningful impact on our growth or earnings trajectory” and batted away concerns about its implementation in the commercial market. He said that 95 percent of the company’s rebates and discounts are passed back to patients and tried to put a positive spin on the rule’s ability to promote value based arrangements with drugmakers.

According to Cordani, Express Scripts – which historically has made around $400 million from drug rebates annually – has already been prepping for the rule’s introduction.

“I would just add that Express Scripts had some visibility into the decelerating trend environment as such took appropriate actions with their services contracts,” Cordani said.

They’re not alone in shifting their rebate practices. OptumRx, the PBM arm of the country’s largest insurer UnitedHealth Group, also said in an earnings call last year they would start passing drug rebates to consumers at the point of sale.

“[T]he reaction from our customer base and the broker community has been strong,” UnitedHealth COO and President Dan Schumacher said.

“I think it adds a level of transparency to consumers and helps to return the economic incentive associated with the rebates to them at the point of sale and that’s particularly important when people are in high deductible offerings where they’re sharing the first dollar burden of healthcare more broadly.”

Dea Belazi, CEO and president of Berwyn, Pennsylvania-based PBM AscellaHealth, was less rosy about the impact of the rule on the larger PBM and insurance industry.

While he agreed with the necessity of increased transparency in the largely opaque negotiations with drug manufacturers, the more immediate impact he believed consumers would see is higher premiums to make up for the roughly $29 billion paid in rebates to PBMs and insurers.

“I would suspect that at organizations like Cigna or CVS-Aetna we’ll see premiums rise to offset those losses as part of their finance model,” Belazi said.

“We haven’t seen anything that forces pharma companies to lower prices and the fear is that you’ve just given them an opportunity to make more money. The entire industry – especially on the commercial side – is on the verge of throwing their hands up.”

Belazi said he and his company now have their work cut out for them now in educating and explaining to clients the effect of rebate rule on their contracts and business model.

Michael Abrams, a managing partner at healthcare consultancy Numerof & Associates, said he believed some of the concerns about premium increases are overblown, especially as the healthcare industry writ large moves toward its stated intention of paying for value.

“If administration costs are eliminated and base costs are lower as a result, this change does not need to translate into premium increases,” Abrams said.

“Further, if we continue to move toward payment that reflects the total cost of care tied to outcomes that matter, then the historical focus on line item discounts becomes irrelevant.”

At least politically, there looks to be some breathing room to make  adjustments before the potential introduction of legislation expanding the proposed drug rebate rule to commercial plans.

House Speaker Nancy Pelosi has came out strong against the HHS rule for not doing enough to control the pricing practices of pharmaceutical companies.

“The Trump Administration’s rebate proposal puts the majority of Medicare beneficiaries at risk of higher premiums and total out-of-pocket costs, and puts the American taxpayer on the hook for hundreds of billions of dollars,” she said in a statement.

“Experience tells us that merely trusting Big Pharma to lower its drug prices for consumers is not a solution, it’s a prescription for more of the same. Under the Trump Administration’s proposal, Big Pharma could see even bigger profits and even less restraint on what they charge seniors.

Picture: Tasos Katopodis, Getty Images

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