By Kenneth E. Thorpe
The Trump administration has a new plan to reduce Americans' out-of-pocket drug bills. It's sure to face opposition from entrenched special interests. But if the administration succeeds in implementing the plan, patients will greatly benefit.
The proposed rule would reform how drug companies and insurers interact, especially in Medicare's Part D prescription benefit, which covers about 45 million seniors and Americans with disabilities. The government doesn't administer its own prescription plans. Instead, it allows private insurers to sell coverage to beneficiaries. The government subsidizes and regulates the plans.
Those insurers decide which drugs to cover, so essentially determine which medicines doctors can and can't prescribe. Insurers use this power as negotiating leverage. Through the "pharmacy benefit managers" they hire to administer their benefits, insurers pressure pharmaceutical companies to offer big rebates on medicines.
These rebates aren't shared at the pharmacy with patients, though. So the bigger the rebate, the more money insurers and pharmacy benefit managers earn. Insurers typically use the savings they wrangle to lower premiums for their entire beneficiary pool; PBMs typically keep their share of the savings.
As a result, these two players in the drug supply chain are incentivized to steer patients toward expensive, brand-name medications that come with big rebates -- and steer patients away from lower-priced generics.
This leaves patients routinely paying far more than they should at the drugstore.
The administration's proposed rule, if enacted, would force insurers to share any discounts at the point of sale, thus reducing patients' out-of-pocket costs.
The rule wouldn't just save patients money. It would also improve patients' health by making it easier to afford a wider range of drugs. Insurers would no longer have an incentive to steer patients towards more expensive products made by drug companies that offer substantial, hidden discounts.
Consider how insurers currently block patients from accessing "biosimilars," which are knockoff copies of "biologic" medicines. Biologics are complex drugs grown from living cells.
Biosimilars aren't technically generics, since there are slight molecular differences between biosimilars and the biologics they mimic. But biosimilars almost always work as well as their brand-name counterparts – except they're notably less expensive.
But insurers often refuse to cover biosimilars, since manufacturers offer few discounts. They instead cover the higher-priced, innovator biologics that come with big, hidden rebates.
Consider that nearly all Medicare prescription drug plans cover the brand-name diabetes biologic Lantus, but only 17 percent cover its biosimilar, Basaglar.
In other words, insurers block patients' access to a cheaper, nearly identical diabetes drug to maximize their own share of drug company discounts.
Such behavior hurts patients, especially those who suffer from chronic diseases that require continuous treatment. Many patients skip doses or decline to fill their prescriptions due to high out-of-pocket costs. It's estimated that so-called drug "non-adherence" causes 125,000 deaths each year. Non-adherence also costs our health system up to $289 billion annually.
That's why the administration's new proposal is such welcome news. The reform prohibits drug companies from offering rebates to Medicare Part D insurers, unless those insurers use the savings to reduce patients' out-of-pocket costs.
Thanks to this rule, insurers would no longer have a reason to steer patients toward expensive brand-name drugs when low-cost generics and biosimilars are available. The reform could save Medicare Part D beneficiaries as much as $25 billion over the next decade.
Congress could help even more patients by expanding the rule to cover individual market and employer-sponsored insurance plans as well. My organization, the Partnership to Fight Chronic Disease, estimates diabetes patients alone could save almost $4 billion each year from such a reform.
Under the status quo, insurers face perverse incentives to steer patients towards higher-cost drugs. The administration's proposed rule would fix this broken system, save patients money, and give them access to a wider range of lifesaving medicines.
Kenneth E. Thorpe is a professor of health policy at Emory University and chairman of the Partnership to Fight Chronic Disease.