Three things to know about the Part D GAO report

Nicole Longo   |     August 16, 2019   |   SHARE THIS

The Government Accountability Office (GAO) recently released a new report looking at Medicare Part D and the role of Pharmacy Benefit Managers (PBMs) in the program. While the report provides a wealth of information about the growth of manufacturer rebates and discounts in Part D and provides helpful context in today’s discussion about ways to improve the program, here are three facts about the report’s findings to keep in mind.

1) Rebates and discounts aren’t making their way to seniors at the pharmacy counter. Regardless of whether PBMs pass through rebates or discounts to insurers, the bottom line is that they are not making their way to patients. And while insurance companies have said they use rebates and discounts to keep premiums low, that doesn’t address the number one problem seniors identify: out-of-pocket costs at the pharmacy counter. In fact, a Kaiser Family Foundation poll from February found that a majority of seniors said a lower copay at the pharmacy was more important than a lower premium when it comes to prescription medicines. Research has also shown that sharing negotiated rebates at the pharmacy counter could save seniors with diabetes more than $350 annually and reduce total health care spending by approximately $20 billion over the next 10 years.

2) The three largest PBMs own or are owned by large insurance companies that offer Part D plans. The report notes that only a small share (0.4%) of rebates are retained by PBMs, with 99.6% of rebates passed through to insurance companies. However, it’s important to keep in mind that the PBM and insurance markets are heavily integrated, with the largest PBMs having common ownership with insurance companies. CVS Caremark (in the process of merging with Aetna), Express Scripts (owned by Cigna) and OptumRx (owned by UnitedHealthcare) are the three largest PBMs in Part D according to GAO. Thinking about PBMs and insurance companies as independent parts of the supply chain is becoming increasingly misleading, especially as you try to figure out why rebates and discounts aren’t making their way to seniors.

3) PBMs generate revenue from fees in Part D on top of spread pricing, rebates and fees in the commercial market. Regardless of whether they are passing rebates along to insurers in Part D, the program is still a significant revenue stream for PBMs. Within Medicare Part D, PBMs are paid fees per prescription by plans, which is the bulk of their revenue from Part D. PBMs are similarly paid fees in the commercial market. Across all markets, recent data found that fees paid to PBMs have quadrupled in the last two years. On top of these fees, GAO explains in its report that “PBMs generally earn more from spread pricing and rebate retention from commercial plans than they do from Part D, according to officials from three PBMs.”

As discussions about addressing patient costs for health care continue, it’s important to look at the entire supply chain. Patients should share in the $166 billion in rebates and discounts biopharmaceutical companies pay to insurance companies, the government, PBMs and others in the supply chain. Learn more at Let’sTalkAboutCost.org.

Nicole Longo

Nicole Longo Nicole is senior director of public affairs at PhRMA focusing on Medicare, 340B, importation and more. She previously worked for a D.C.-based public affairs firm where she assisted a wide range of clients with communications efforts on everything from trade policy to agriculture policy to health care policy. Outside the office, Nicole can be found trying new restaurants (usually Italian), taking an occasional barre class and cheering on the Cincinnati Bengals.

Topics: Drug Cost, Part D, Out-of-Pocket Costs, Let's Talk About Cost

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