The Trump administration just killed a long-awaited plan to shine a light on the opaque pharmaceutical supply chain and help Americans afford prescription drugs.
It’s a shame the administration abandoned this effort. If enacted, the rule would have saved patients billions of dollars at the pharmacy counter — especially those living with diabetes.
The plan took aim at Medicare Part D, the program that provides prescription drug coverage to more than 44 million seniors and people with disabilities.
Part D has a different structure than most other government programs. The federal government subsidizes private insurance companies, who administer and sell drug plans to Medicare enrollees.
This structure forces insurers to compete with one another for business. And it ensures that patients can choose from a range of plans that cover different medicines. Beneficiaries can almost always find at least one plan that covers the medicine they need.
Insurers hire “pharmacy benefit managers” to administer these plans and negotiate drug prices with pharmaceutical companies, which offer PBMs massive rebates to ensure their products are covered. For most drugs, these rebates typically knock 30 percent off a brand-name medicine’s list price. For insulin, discounts are typically much higher — often 70 percent.
Unfortunately, patients rarely see these discounts in the form of lower pharmacy bills. PBMs take some of the discounts for themselves, and give the rest to insurers. Insurers then use the savings to lower premiums across the board — and then charge patients as if the discounts never happened.
Here’s how. Patients typically owe a copay or coinsurance fee when they pick up each prescription. These fees are based on the original list price of drugs, instead of the substantially lower negotiated price the insurer and PBM paid.
Say a patient is prescribed a common, fast-acting insulin that costs $275 per bottle. A PBM receiving a 70 percent manufacturer discount will pay just $82.50. If a patient with a 25 percent coinsurance requirement were allowed to pay based on this negotiated price, she’d owe just $20.63.
But in the real world, she’d pay $68.75 — 25 percent of the full list price.
In other words, insurers and PBMs offload the lion’s share of insulin costs onto diabetes patients.
President Trump wanted to correct this problem. The proposed rule would have made it illegal for drug companies to offer discounts and rebates to insurers and PBMs unless they passed the savings directly to patients.
That was the right idea.
Seniors would have seen their out-of-pocket costs drop. That’s especially true for the 12 million seniors with diabetes, whose health care costs are two times greater than the average patient. If rebates were used to curb patient out-of-pocket spending, beneficiaries taking five drugs, including insulin, would have saved $895 annually, according to one analysis. And Part D beneficiaries across the board could have saved as much as $57 billion over the next decade.
That’s why my organization, the Diabetes Patient Advocacy Coalition, recently penned a letter to the Department of Health and Human Services voicing our support for the president’s rebate reform.
Additionally, the proposal would have cut overall health spending. A Yale University study found that one in four diabetes patients cuts back their insulin because it costs too much.
When those patients don’t take their medicines as prescribed, they often end up in the hospital. Diabetes costs Medicare more than $100 billion a year. Roughly a third of that cost is due to diabetes patients landing in the hospital after mismanaging their condition.
By helping diabetes patients afford their medicines, the proposal could have cut Medicare spending by approximately $20 billion over the next decade.
Opponents of the rule said it would have caused premiums to rise. That’s true — premiums would have climbed an estimated $67 per year. That’s pennies on the dollar when considering how this plan would benefit America’s most at-risk seniors.
Scrapping this rule was a bad idea. Passing drug discounts to patients would have cut patient costs, kept seniors healthy, and trimmed national health spending. Let’s hope the Trump administration comes to its senses soon.