PBMs passed on 99% of rebates
Pharmacy benefit managers (PBMs) are only keeping less than 1% of rebates in the Medicare Part D program, passing on the rest of drug savings to plan sponsors, a report from the Government Accountability Office (GAO) found.
GAO looked at the role of PBMs, which manage drug benefits, in the Medicare Part D program to help policymakers gain a better understanding of what PBMs do and how they managed drug spending and use. PBMs have gotten a reputation as the middlemen in the drug industry and critics have called the rebate system opaque, as the deals between drugmakers and distributors are not publicized and pass through PBMs.
However, the report revealed that PBMs aren’t actually holding onto the rebates, which are discounts paid by manufacturers to Part D plan sponsors and PBMs after the sale of a drug at a pharmacy. Medicare Part D expenditures topped $100 billion in 2016, though rebates and other price concessions grew faster than expenditures from 2014 to 2016.
The vast majority––76%––of drug benefit management services were performed by PBMs in 2016, while plan sponsors performed the other 26% of services themselves. These services for Part D coverage can include negotiating drug rebates and other price concessions as well as paying pharmacy claims.
The report comes after HHS decided not to push forth with a proposed rule to eliminate the PBM rebate system entirely. The Trump administration proposed eliminating rebates between drugmakers and PBMs in late 2018 and was met with industry backlash. PBMs also began to pre-emptively assert that they passed on the majority of savings from rebates to their clients, including CVS Health, which stated it returned 98%, or $300 million, back to clients in 2018. The company also announced a new PBM pricing model in late 2018 to pass through 100% of rebates to plan sponsors.
However, other reports have shown that PBMs can make a killing through the opaque rebate system. One report out of Kentucky revealed that PBMs made $123.5 million in hidden costs from the state’s Medicaid program.
See the GAO report here.
Amy joined TriMed Media as a Senior Writer for HealthExec after covering home care for three years. When not writing about all things healthcare, she fulfills her lifelong dream of becoming a pirate by sailing in regattas and enjoying rum. Fun fact: she sailed 333 miles across Lake Michigan in the Chicago Yacht Club "Race to Mackinac."