Manufacturers frequently offer rebates that are passed through to consumers to reduce their purchase price of a product. For example, when buying a new car, the buyer gets the financial benefit of the manufacturer’s rebate rather than the dealer (middleman) keeping the rebate.
Strikingly, this is not the case in a transaction so fundamental to all of us as the purchase of our prescription medicines.
Pharmaceutical manufacturers returned $236 billion in rebates in 2021. However, the vast majority of these rebates go to pharmacy benefit managers and insurance companies, and are not passed through to the patients who are buying those medicines from pharmacies.
PBMs claim they apply the rebates to keep insurance premiums from rising. While this is a laudable goal, it should not occur at the expense of making prescription medicines less accessible and affordable to patients, which is what actually happens.
PBMs cause the tail to wag the dog when it comes to a core tenet of group health insurance — premiums spread and balance the risk across the insurance pool among individuals who use relatively less health care and those who use more, especially seniors. In fact, under the PBMs’ current business practices, people who are on medications, especially senior citizens who may be taking multiple drugs, effectively bear a disproportionate share of the cost burden because they pay more for their medicines than they should at the pharmacy counter, based on a list price that does not consider the rebates, coupled with deductibles and copays or coinsurance.
A study published in the September 2020 issue of Health Affairs stated that, if rebates were passed through to patients to lower the cost of their purchase at the pharmacy counter rather than applied to insurance premiums, the overall cost of commercial health insurance would increase less than 1%. As the authors note: “As a result, modest changes in the cost of the drug benefit are unlikely to be visible to commercially insured enrollees — they would be rather small relative to overall cost of health insurance and could be easily offset by other modest changes in benefits or financing.”
This study therefore suggests the solution. Under a structure where drug manufacturers do not sell to patients, do not set the price at the pharmacy counter and do not set patient out-of-pocket costs, and a drug’s list price — instead of the discounted price — is used to determine a patient’s copays, coinsurance and deductible — passing through pharmaceutical manufacturer rebates to patients will provide immediate relief to those who need it most, and will, together with efforts to control patients’ out-of-pocket costs, inject more balance into the commercial health insurance system across all insureds.
Dean Paranicas is the CEO of the HealthCare Institute of New Jersey.