Trump Scraps A Reform That Would Have Saved Patients Billions

Trump Scraps A Reform That Would Have Saved Patients Billions

This week, the Trump administration axed a proposal that would have saved American patients billions of dollars by shedding light on the complex drug supply chain. If enacted, the rule would have required insurers to share discounts they negotiate with drug companies directly with patients.

The proposed rule would have changed the terms of Medicare Part D, which provides prescription drug coverage to more than 40 million elderly and disabled Americans. Part D plans are administered by private insurers who receive government subsidies. These insurers offer a variety of plans beneficiaries can choose from, each with a different formulary—the list of drugs a plan covers.

Insurers don’t create these plans alone. They employ, “pharmacy benefit managers” to design and administer their drug benefits. PBMs negotiate with drug companies to determine which drugs a plan will cover. They also help insurers set levels of cost-sharing for patients.

PBMs have a lot of negotiating clout. The three biggest PBMs handle 70% of all prescriptions filled in the United States. Pharmaceutical companies want their products included on formularies, so they offer up their drugs at a heavily discounted price. Just last year, drug makers gave out $166 billion in discounts and rebates.

However, these discounts don’t make their way into patients’ pockets. PBMs keep some of the rebates for themselves—and pass the bulk of the savings to insurers, who use them to reduce premiums for all beneficiaries.

Lower premiums are great. But this system puts the sickest patients at a disadvantage.

Patients who have chronic diseases often need multiple medications to manage their conditions. Regardless of how low their premiums are, they face copays or coinsurance whenever they fill a prescription.

Copays and coinsurance can be steep because insurers typically tie them to the list price of a drug. They do so because the rebates and discounts that their PBM has negotiated on their behalf are secret. After all, PBMs and insurers don’t want their competitors to know what kind of discounts they’ve extracted from a drug maker.

Imagine a blood thinner with a $300 list price. An insurer may acquire that drug for $150, thanks to a 50% discount negotiated by its PBM. But the insurer wouldn’t let patients know about that discount. Instead, it would charge them coinsurance or a copay based on the $300 list price. If that coinsurance is 30%—a not uncommon rate—then patients would pay $90 out-of-pocket for the drug.

By contrast, if patients’ coinsurance were based on the discounted price—what the insurer actually pays for the drug—then their cost-sharing would be just $45.

In other words, this system all but guarantees that Americans overpay for drugs.

President Trump was poised to reform this perverse system. But by withdrawing his proposed rule, he’s perpetuating it.

Had the rule taken effect, it would have reduced patients’ out-of-pocket burden and made drugs more accessible. By one estimate, if 100% of rebates were made available at the point of sale, patients could have saved around $57 billion over the next decade.

These savings would have been good not just for people’s pocketbooks but for their health, too. High out-of-pocket costs frequently cause people to stop taking their medicines as prescribed. This phenomenon, called “medication non-adherence,” is responsible for 125,000 American deaths each year. Lowering out-of-pocket costs would go a long way toward improving patient health and ultimately saving lives.

Now that the Trump administration has killed this sensible reform, patients may never see these savings. That’s a shame.

Just one year into his term, President Trump promised Americans he was, “going to get prescription drug prices way down.” Unfortunately, it seems like the status quo has triumphed over patients once again.

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Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.