In February 2019, the Office of Inspector General and Department of Health and Human Services proposed to amend the safe harbor regulation on discounts. This amendment would remove safe harbor protection for rebates involving prescription pharmaceuticals and creation of new safe harbor protection for certain point-of-sale reductions in price on prescription pharmaceuticals and certain pharmacy benefit manager (PBM) service fees. Per the Health and Human Services department, the purpose of this proposed rule is to update the discount safe harbor to update the discount safe harbor to address the modern prescription drug distribution model and ensure safe harbor protections extend only to arrangements that present a low risk of harm to the Federal health care programs and beneficiaries.
Rebate Reform and Diabetes
Diabetes is both an individual diagnosis and a public health problem. Over 30.3 million Americans (over 9.4% of the population) have diabetes. People living with diabetes pay much more for their healthcare. People who have diabetes spend 2.3 times more on their health than people who do not have the disease. A good portion of what people with diabetes spend goes towards prescription pharmaceuticals. High costs make access to affordable prescription pharmaceuticals difficult for many people with diabetes, including those covered by Medicare Part D and Medicaid MCOs.
These changes to the rebate system would decrease overall costs to patients with diabetes. The proposed rule would change which actor in the pharmaceutical products chain assumes the burden of cost from the patient to insurance plans. This switch may lead to higher health plan premiums (estimates range from a $4 to $10/month increase), but for millions of Americans who have diabetes, the increased cost is more than offset by savings patients will see in their cost-sharing burden. This proposed rule would force insurance plans to act the way they are designed to be – the cumulative “pot” should be used to help those with the highest healthcare costs.
In our current system, health plans keep rebates throughout the phases of Medicare Part D coverage. Medicare Part D patients go through four different phases, and they have different cost burdens in every phase. The four phases are the deductible phase, the initial coverage phase, the coverage gap phase, and the catastrophic phase. Health plans retain a majority of rebates collected during the deductible, coverage gap, and catastrophic phases of the Part D benefit, even though plans are only responsible for covering a small portion of drug costs during these phases. The plans use the rebates to reduce premiums rather than reducing cost-sharing.
Patient cost-sharing savings will outweigh health plan premium increases. Many cost-sharing amounts are tied to the list price of prescription pharmaceuticals, but insurers are charged far less than list price for the drugs. This results in patients who greater health needs subsidizing insurers and “healthier” patients. This proposal would begin to put an end to this practice by forcing insurers to bear more of the list cost for drugs. This may result in slightly higher premiums as insurers seek to offset their increased cost burden, but the prescription drug savings for patients will be more than what they would likely be charged via their premiums.
Furthermore, Medicare Part D plan premiums will increase whether this rule is passed or not. However, the proposed rule would decrease the amount that premiums increase. The CMS Office of the Actuary (OACT) predicts that average Part D plan deductibles will increase over the next decade. With implementation of this proposed rule, premiums will likely rise less than if the rule were not implemented. In 2021, OACT predicts that average premiums will be about $460 without the proposed rule and $405 if it is implemented. The savings are even more clear by 2029, when OACT predicts premiums will be about $725 without the proposed rule and $580 if it is implemented.
Patients will be able to adhere to their treatment plan if they have lower cost-sharing obligations. Patients who have diabetes do not access their medications when the cost-sharing burden is high. A recent study found that patients with type 2 diabetes are more likely to adhere to prescribed medication when they have lower copayments. Even a cost as low as a $5 copay can have an effect on adherence to diabetes treatments. When people with diabetes cannot access their medicines and are less adherent to prescribed medication, they have higher medical spending because of increased doctor visits, hospitalizations, and treatment of complications.