OIG proposed rule could help strengthen the Part D market

Holly Campbell
Holly Campbell March 28, 2019


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Patients should share in the $166B in rebates and discounts biopharmaceutical companies pay to insurance companies, the government, pharmacy benefit managers and other entities in the supply chain in order for a medicine to be covered.

The Department of Health and Human Services Office of the Inspector General recently proposed a regulation to do just that. The proposed rule encourages the rebates Medicare Part D plans negotiate with biopharmaceutical companies to be entirely passed through to beneficiaries at the pharmacy counter. The rule could also help strengthen competitive incentives in the Part D market. A recent white paper, commissioned by PhRMA from Milliman, describes several ways this could occur. Here’s our take on the paper:

  • While the proposed rule may increase premiums modestly, plans will have incentives to minimize increases. Plans may react to the proposed rule by making changes to keep premiums low because they want to attract beneficiaries during open enrollment. For plans to qualify for auto-enrollment of low-income subsidy (LIS) members, their premiums must be below the average premium for the region. Therefore, plans who wish to retain a substantial share of LIS enrollees will be further incentivized to keep their premiums low.
  • Shifting away from rebates may lower barriers to smaller or new Part D plans. Since rebates would no longer be such an important element in the market, other players in the supply chain may see opportunities to launch their own Part D plans. For example, according to Milliman, employer group waiver plans (EGWPs), wholesalers and drug store chains could use their discounts and service arrangements to support new Part D plans. This could increase competition in the Part D market, strengthening the market overall.
  • The proposed rule could increase use of biosimilars and generics. The proposed rule aims to align plans’ incentives to cover medicines offering the highest value at the lowest net price, regardless of the rebate. Those incentives could open the door for increased uptake of biosimilars and certain generics (which typically lack the rebates offered for brand-name medicines) by allowing them to obtain more favorable formulary placement.

Studies point out how the proposed rule can reduce costs for Part D members who have high drug spending. Critics claim the proposed rule would increase medicine prices or would make the market less competitive. This study shows how the proposed rule could actually reshape the competitive landscape and make the Part D marketplace more competitive.

To learn more about the right solutions to fix Medicare, visit PrescriptionForMedicare.org.

Topics: Medicare, Out-of-Pocket Costs, Let's Talk About Cost, Prescription for Medicare