More on Reimbursement

Rebates for brand-name drugs in Part D reduced growth in spending

Still, Medicare spent $2 billion more for brand-name drugs with rebates in 2015 than in 2011.

Susan Morse, Senior Editor

An Office of the Inspector General report shows that rebates negotiated by health insurers and pharmacy benefit managers slowed Medicare Part D spending on brand name drugs by 15 percent.

In the report done by Congressional request, the OIG examined 1,510 brand-name drugs with Part D reimbursement and rebates each year from 2011 to 2015.

It found that total reimbursement grew much more than rebate-adjusted reimbursement. Specifically, total Part D reimbursement for brand-name drugs increased by 19 percent from 2011 to 2015, versus a 4-percent increase in rebate-adjusted reimbursement for these drugs over the five years reviewed.

Although total rebate-adjusted reimbursement grew less than total reimbursement for brand-name drugs in Part D, Medicare still spent $2 billion more for brand-name drugs with rebates in 2015 than in 2011, the OIG said. Total Part D rebate-adjusted reimbursement increased from $46 billion to $48 billion.

This increase occurred despite a 33-percent decrease in the total number of prescriptions for brand-name drugs during that time.

Total Part D reimbursement, not adjusted by rebates, increased from $55 billion to $65 billion.


Drug rebates are passed on from manufacturers to pharmacy benefit managers to insurers. While insurers said they use the funds to lower premiums for all beneficiaries, the rebate process came under fire this year as a middleman system that increases drug costs.

America's Health Insurance Plans and the Campaign for Sustainable Rx Pricing are pointing to the OIG findings as verification for their argument that it's the manufacturers, and not the rebates from pharmacy benefit managers, that are increasing drug costs.

"This new HHS-OIG report repudiates one of Big Pharma's biggest myths: that the savings we negotiate drive drug prices up," said AHIP President and CEO Matt Eyles. "The truth is this report clearly demonstrates our effectiveness as a negotiator – and the rebates we secure for seniors in Part D lead to lower costs."

The Campaign for Sustainable Rx Pricing said the report undercuts a common refrain from Big Pharma blaming rebates for pushing drug prices higher.

"This report provides the latest, incontrovertible evidence that the culprit for the crisis of rising prescription drug prices are the brand name manufacturers who alone set and control the list price," said CSRxP executive director Lauren Aronson. "Big Pharma can no longer hide behind its scapegoating of PBMs and must be held accountable for its egregious pricing practices."


Earlier this year, Department of Health and Human Services Secretary Alex Azar proposed to lower the list price of prescription drugs by correcting what he called the perverse incentive to increase list prices to get higher rebates.

The regulation would have excluded rebates from safe harbor protections that kept them from being in violation of the anti-kickback statute. Instead, the proposal would create a new safe harbor protecting discounts offered to patients at the pharmacy counter.

Numerous stakeholders protested, saying the move would not lower drug costs.

In July, the Trump Administration pulled back on its proposal to end PBM rebate protections.


Although total rebates for brand-name drugs in Part D nearly doubled from 2011 to 2015, 42 percent of brand-name drugs had decreases in unit rebates.

Forty-five percent of brand-name drugs did not have rebates in every year from 2011 to 2015.

From 2011 to 2015, total rebates for brand-name drugs reviewed in Part D grew from $9 billion to $17 billion.

Increases in rebate dollars were overwhelmingly allocated to a minority of drugs. Specifically, 10 percent of all brand-name drugs reviewed accounted for 60 percent ($5 billion of $8 billion) of rebate growth.

In contrast, the remaining 90 percent of drugs accounted for only 40 percent of total rebate growth.

While rebates for Part D drugs increased by $2 billion, that figure would be $10 billion without rebates, according to CSRxP.

Twitter: @SusanJMorse
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