Writing in RealClearHealth, Dr. Madelaine A. Feldman, a rheumatologist, and Wayne Winegarden, an economist with the Pacific Research Institute, explain how the Biden administration and state attorneys general could lower drug prices by ending anti-competitive industry practices known as “rebate walls“.
“Rebate walls, also known as rebate traps, block competition in parts of the U.S. prescription drug market, especially immunology, which is home to some of the costliest drugs. They can favor older, more expensive and even less effective drugs over newer, more effective, and often cheaper alternatives.
“Thanks to rebate walls, patients are routinely forced to “fail first” on certain medications before their prescribed medicine is covered by insurance. This can lead to higher health care costs and discourage innovation.”
The authors point out that rebate walls have been flagged by politicians across the political aisle, including newly appointed HHS Secretary Xavier Becerra, Senator Klobuchar (D-Minnesota), Rep. Cornyn (R-Texas) and Senator Grassley (R-Iowa). With drug pricing legislation in the works, the timing seems ripe for reforming these practices.
Rebate walls are complex, and like many aspects of our health care system, conducted in secrecy. That makes them difficult to understand, let alone reform. Here’s how they work:
“Manufacturers of blockbuster drugs set high list (“sticker”) prices but offer large rebates to get preferred placement on drug formularies constructed by pharmacy benefit mangers (PBMs). This results in low net prices for PBMs or the health insurance plans they serve. That’s good, except many PBMs and health insurance plans base patients’ costs on the high list prices.
“Rebates can become walls when a manufacturer’s drug evolves into a blockbuster and the manufacturer ties its rebates to large volume targets. Newer or less expensive drugs are typically approved for fewer indications and taken by fewer patients, so they cannot match the blockbuster’s large dollar value of rebates. Sometimes, the manufacturer of the blockbuster drug even ties its large rebates to retaliatory measures, such as the claw back of rebates. To hit the performance target and avoid the retaliatory measures, PBMs and health insurers block competing drugs through formulary placement.”
These practices are linked to worse health outcomes for patients who are forced to take less effective medicines for a period of time before their insurance will cover the medications their doctors have prescribed.
As Winegarden revealed in a study of rebate walls released in December, that not only raises costs for patients, but for employers and Medicare too.
“Competition among brand-name drugs leads to 14-26% lower prices for people covered by employer-based insurance. For expensive immunology drugs, those lost savings translate to patient out-of-pocket costs that are roughly $5,000 higher per year. The cost impact is even bigger when rebates discourage competition from biosimilars,” which are versions of biologic drugs that can be half the cost.
All told, that adds up to hundreds of thousands of dollars a year in lost savings. So how can we end these practices and start saving that money for patients and employers?
According to Feldman and Winegarden, President Biden could mandate that all rebates are passed directly on to patients right at the pharmacy check-out. A bill to this effect was just passed by West Virginia’s state legislature and, if signed into law by Governor Jim Justice, would be the first of its kind nationwide. More scrutiny from the Federal Trade Commission and state attorney generals would also be a step in the right direction, as would attention from the Government Accountability Office. Last year, Senator Klobuchar asked the GAO to look into rebate walls, and just this month 28 patient advocacy groups sent her a letter supporting the move.
Read the full article at RealClearHealth for Feldman and Winegarden’s complete analysis and recommendations.
