CBO: Curbing drug rebates would cost billions

A proposal to end drug rebates in Medicare would increase spending by about $170 billion over 10 years, CBO says.

The rise in federal costs comes from higher insurance premiums, which otherwise would have been reduced by the rebates. (Photo: Shutterstock)

A key part of the Trump administration’s plan to lower the list prices of drugs wouldn’t actually do so and would end up increasing federal spending by tens of billions of dollars over a decade, the Congressional Budget Office said Thursday.

A proposal put forth by the U.S. Department of Health and Human Services in January would sharply curtail a complex system of drug-price rebates that pharmaceutical companies pay to pharmacy-benefit managers, or PBMs. The rebates give drugmakers’ products favorable placement on list of drugs covered by health-insurance plans. Those lists can steer patients to one product over another, using co-pays or cost sharing to make preferred products cheaper.

Banning them would not have the intended effect of forcing prices down, the CBO said.

Related: Winners and losers in Trump’s plan to kill drug rebates

“Rather than lowering list prices, manufacturers would offer the renegotiated discounts” in another form, said the CBO, which performs budgetary and economic analysis for Congress.

The proposal would increase spending for Medicare, the U.S. health program for the elderly and disabled, by about $170 billion over 10 years. It would raise federal spending for Medicaid, the shared state-federal health program for low-income people, by about $7 billion in the same period, according to the CBO.

The Pharmaceutical Care Management Association, which represents PBMs, said the report supports what the industry has been saying all along.

“The CBO analysis confirms that the proposed rule on prescription drug rebates will not achieve the administration’s stated goal of reducing prescription drug prices,” PCMA Chief Executive Officer JC Scott said in a statement.

The estimate is a blow to the Trump administration’s drug-cost-reduction efforts, a goal shared by both Republicans and Democrats. Pharmacy benefit managers including those run by Cigna Corp., UnitedHealth Group Inc. and CVS Health Corp., have opposed the idea.

While rebates can be used to lower insurance premiums broadly, they have also resulted in high list prices that some patients pay when they’re outside of their insurance coverage or if they don’t have insurance. In January, HHS Secretary Alex Azar said that eliminating the rebates would “finally ease the burden of the sticker shock that millions of Americans experience every month for the drugs they need.”

The rise in federal costs comes from higher insurance premiums, which otherwise would have been reduced by the rebates. The proposal would also lower out-of-pocket drug costs for some Medicare beneficiaries, according to the CBO, leading to higher drug utilization.

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