Earlier this year, the Department of Health & Human Services (HHS) Office of Inspector General (OIG) released a proposed rule that takes aim at today’s complex system of list prices and rebates in the Medicare Part D market. The proposal would help ensure discounts and rebates negotiated between biopharmaceutical companies and insurers are used to reduce Medicare Part D beneficiaries’ out-of-pocket costs at the pharmacy—a bold step toward a better system for America’s seniors.
The proposed rule would lower costs for seniors overall. And recently the Congressional Budget Office (CBO) issued a report detailing its assessment of the proposed rule’s budgetary impact, estimating that the proposed policies could increase federal costs by $177 billion between 2020 and 2029, with $170 billion of those costs accruing to the Medicare program.
Here is what you need to know about the CBO rebate rule score.
The report fails to account for the stronger incentives that the proposed rule could create to negotiate the best value for patients. Actuaries project federal savings of up to $100 billion when accounting for how the competitive marketplace helps control costs. Today, just three pharmacy benefit managers (PBMs) control 75 percent of the market. PBMs’ substantial negotiating leverage would be unchanged by the proposed rule, and PBMs and Part D plan sponsors would continue to use a variety of tools to constrain medicine spending. In fact, because plans compete on the basis of premium to attract enrollees, they would have even stronger incentives to negotiate and encourage the use of medicines with the lowest point-of-sale costs. The actuarial firm Milliman noted in its analysis of the proposed rule that, “it is critical to consider behavior impacts” from changes in the proposed rule because “all stakeholders would likely change behavior as a result.” In four of the six scenarios in which the independent actuaries at Milliman considered market responses, federal costs decreased by up to $100 billion over 10 years.
CBO often overestimates Part D costs. Historically, CBO’s estimates of budget impacts from legislative and policy changes have significantly overstated the actual costs to the federal government. Actual federal costs for Part D were $349 billion lower, or 45%, than CBO’s original projections for the 2004-2013 budget window. And in a July 2004 report detailing its methodology for assessing the impact of the Medicare Modernization Act, CBO projected that the average Part D premium in 2013 would reach nearly $60. In contrast, the base beneficiary premium in 2013 was only about $31 and had grown to only $33 for 2019.
The bottom line is that the proposed rule would help patients in Part D, particularly those who are the sickest, save hundreds in cost sharing each year. For example, a senior with diabetes is projected to save nearly $900 a year on their out-of-pocket costs. Those savings far outweigh the modest $3 - $6 per month estimated increase in premiums, even as the increased medicine adherence would result in better health outcomes for Part D patients. That is why the proposed rebate rule would be the right Prescription for Medicare. To learn more about the right solutions to fix Medicare, visit PrescriptionForMedicare.org.
Tom Wilbur is Director of Public Affairs at PhRMA focusing on message development and opinion research. Prior to joining PhRMA in 2019, Tom worked on Capitol Hill and on political campaigns for nearly a decade, most recently responsible for communications, campaigns and strategy for U.S. Rep. Fred Upton and the House Energy and Commerce Committee. Tom is a proud Michigander and outside of the virtual office enjoys reading, running, hiking, golfing, and spending time with friends and family.