Retirement insights from a Colorado PERA perspective

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Can an Executive Order Bring Down Drug Prices?

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The rising cost of prescription drugs is an issue of nationwide concern. Studies, articles, and think-pieces on the subject are churned out daily. Legislators question pharmaceutical executives and roll out plans to wrestle prices down. It’s the number-one topic on voters’ minds in 2020.

Despite all the attention and demand for action, change can seem nonexistent. One reason: Untangling the drug-price knot isn’t easy. A 2019 Consumer Reports article stated, “to pin all the blame on Big Pharma is an oversimplification.”

In July, President Trump signed a number of executive orders with a stated goal of lowering the price consumers pay for prescription drugs. The Public Sector HealthCare Roundtable, an organization in which Colorado PERA is a member, “vocally opposed” one particular executive order that seeks to change the way rebates work in Medicare Part D plans.

The executive order in question instructs the Director of Health and Human Services (HHS) to ban Medicare Part D plans, including PERACare, from passing on prescription drug rebates to those in the plan (a cost-saving mechanism recently featured in another PERA On The Issues article). Instead, the rebates, which are paid by drug manufacturers, would be passed directly to the consumer at the point of sale.

At first, this change might seem like a more efficient way of conducting business. But PERA’s Director of Insurance Jessica Linart said understanding a few details can illustrate some unexpected consequences of this change.

Linart said that when PERACare receives rebates from a manufacturer, the money is used to bring down monthly premiums for everyone. If these rebates disappeared, premiums would rise by the corresponding amount. This isn’t just a PERACare issue, either: the Congressional Budget Office estimated the price tag of this change to be $177 billion over a decade.

Second, giving the rebate directly to the purchaser of a drug might seem like a more equitable use of the money—after all, why should someone who buys a prescription drug split those savings among others in the plan who didn’t buy that drug?

Linart said the explanation lies in the different layers of payments in any insurance plan. Say the sticker price of Drug XYZ is $300. You pay a $50 co-pay at the counter. The remaining $250 is picked up by your insurance plan.

Now let’s say the drug manufacturer issues a $100 rebate for this drug. Currently, the plan gets $100 and, in the case of plans like PERACare, those dollars are used to lower premium prices.

Under the new executive order, the plan would no longer get the $100 to lower premiums and would be on the hook for the full $250, a cost that is borne by participants in the plan in the form of higher premiums. The consumer buying the drug would also not get $100. He or she would receive a rebate up the amount paid at the counter—in this case, $50. The manufacturer pockets the difference.

Healthsperien, a health care policy consulting firm, released a Roundtable-endorsed memo that addressed the executive orders. The memo reiterates that this executive order does not itself change the rebate rules; it only instructs HHS to make this change. The memo concludes that any final rule is unlikely to resemble the executive order exactly due to pushback from “multiple angles” and budgetary restrictions.

How exactly this executive order will play out remains to be seen. In the meantime, what can consumers do? Linart said being proactive about researching your options is a must: “In addition to the usual advice to take generic medications whenever possible, I’d suggest reviewing all of your medications with your physician on an annual basis to ensure the medications you’re taking are still needed, work safely together, and are the lowest-cost options.”

Linart said that while PERACare can’t control industry and regulatory realities, she and others work to get the best outcomes for members: “We work with a pharmacy consultant to continually review the operation of our pharmacy plan, and we go out to bid for pharmacy benefit managers every three to four years to get the most competitive pricing for our members.”

Comments

  1. Diane says:

    How about, any action taken to reduce US drug prices is at least a start! Who else would go up against the GLOBAL PHARMA’s except Trump! Wonder why Pharma’s are paying millions for Trump attack ads? Start questioning instead of buying into Global Media!!!!

  2. E. Rogers says:

    While it is probable that Big Pharma is not the the only one to blame for drug prices being so high, one cannot overlook the fact that the executives of these companies reap large compensation packages for doing very little. One has to wonder how many people could afford medication if these salaries and other compensation perks were more reasonable.

  3. Does the current policy lead to a situation where the insurance- my insurance provider, for example – accept certain drugs more than others, based not on my need but based on the rebate? I would think that door to abuse is then wide open. I would like the rebates listed specifically on each prescription, and an accountability tally sent to members as a unit, and individually, at the end of each calendar year. I would like to be sent the reasons for one drug being acceptable, but the one that I was prescribed. I have gotten no answers for asking customer service.

    • PERA On The Issues says:

      Hi Judith,

      Price and rebates can play a role in whether a drug makes it onto an insurance carrier’s formulary, but safety and efficacy are of course the most important piece that is looked at. So if there are two drugs that treat the same condition and one has a larger rebate, making it less expensive, then that drug may be placed on the formulary and the other excluded.
      If you have a concern about a particular situation, your doctor could potentially contact your carrier. If you call PERA’s customer service line, ask to talk to someone in the Insurance department, and they may be able to assist you further, too.

  4. Does the current policy lead to a situation where the insurance- my insurance provider, for example – accept certain drugs more than others, based not on my need but based on the rebate? I would think that door to abuse is then wide open. I would like the rebates listed specifically on each prescription, and an accountability tally sent to members as a unit, and individually, at the end of each calendar year. I would like to be sent the reasons for one drug being acceptable, but not the one that I was prescribed. I have gotten no answers when asking customer service.

  5. Judith Lavezzi says:

    The cost of drugs is NOT the number one topic of concern on the minds of my friends, acquaintances, or myself. That is one of the many concerns that feel pretty vital these days.

  6. Paula Lindenberger says:

    This explanation was extremely helpful in understanding a possible change in procedures that I know so little about. Thank you for the continued hard work for all of us in this organization.

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