Drug Rebates in Medicare Part D - PowerPoint Presentation

Slide1

Drug Rebates in Medicare Part D

Erin Trish

July 27, 2021

Rebates create a wedge between list and net pricesList price (WAC)

Source:

Sood, Ribero, Ryan, Van Nuys (2020).

Notes:

WAC is wholesale acquisition cost. Drugs included in the sample represent ~$380B in sales in 2016 (~84% of US branded prescription drug sales). Rebates includes rebates and all other concessions, including Medicaid rebates. Dollars are not adjusted for inflation. .

Rebates

Net price

Part D benefit design encourages higher list prices by putting the government at greatest risk for high spending

Notes:

Benefit design is for non-LIS beneficiaries in 2021. The total drug costs for the catastrophic limit is estimated for an average non-LIS beneficiary. True out-of-pocket spending includes manufacturer-paid discounts.

$445 Total Drug Cost

$4,130 Total Drug Costs

Plan pays 75%

Enrollee pays 100%

$6,550 True Out-of-Pocket Spending

(approx. $10,048 Total Drug Costs)

CATASTROPHIC COVERAGE

Plan

15%

Government

80%

5%

Plan

5%

Manufacturer

70%

Enrollee

25%

Brand

Enrollee

25%

INITIAL

COVERAGE

PERIOD

Plan

75%

DEDUCTIBLE

Enrollee

100%

Enrollee

25%

COVERAGE

GAP

Plan

75%

Generic

Part D spending has become increasingly concentrated in catastrophic phaseCatastrophic spending

Note: About

8%

of beneficiaries reach catastrophic phase each year.

Source: Analysis using 100% Sample of Medicare Part D Event Files (2007-2016).

Reinsurance costs

Reinsurance Subsidy

Plan Bid

Beneficiary Premium

Premium

SubsidyDespite the growth in reinsurance subsidies, beneficiary premiums have been remarkably stable

Source:

Analysis using CMS Annual Releases of Part D National Average Bid Amount and Other Part C & D Bid Information. Premium subsidy is the direct subsidy.

Intermediate Projections

Source:

2020 Medicare Trustees Report. Table IV.B8.

Rebates have grown considerably, keeping premiums low

Source:

Lakdawalla and Li

(2021).

Notes: Benefit design is for non-LIS beneficiaries. The total drug costs (TDC) for the catastrophic limit is estimated for an average non-LIS beneficiary. True out-of-pocket (TrOOP) spending includes manufacturer-paid discounts.

$4

05

TDC

$

3,750

TDC

Plan pays 75%

Enrollee pays 100%

$

5,000

TrOOP

(~$

8,418 TDC)

CATASTROPHIC COVERAGE

Plan

15%

Government

80%

5%

Plan

15%

Manufacturer 50

%

Enrollee3

5%Enrollee25%

INITIAL

COVERAGE

PERIOD

Plan75%

DEDUCTIBLE

Enrollee

100%

COVERAGE

GAP

(Brand)

2018 Standard Benefit Design

Effective Beneficiary Cost-Sharing as a Share of Net Price

13%

64%

90%

Part D cost-sharing is tied to list price, so rebate growth

dilutes the benefit and increases out-of-pocket spending

Excess OOP spending is greatest for the

most competitive

drug classes

Basing cost-sharing on net rather than list price would reduce out-of-pocket spending for about half of beneficiaries 31% of non-LIS beneficiaries who reached catastrophic coverage would not have done so under a net price policy

Source:

Trish, Kaiser,

Joyce

(2020). Notes: Restricted to non-LIS beneficiaries. Cost-sharing based on list versus net price compared under standard benefit design. Analysis assumes no behavioral changes.

SummaryRebates have grown considerably, moderating growth in net drug pricesPart D dynamics encourage growth in list prices and rebates Rebate growth dilutes the Part D benefit and increases out-of-pocket spendingParticularly for beneficiaries taking drugs in the most competitive classesBeneficiaries taking highly-rebated drugs subsidize premiums for allPolicy changes are needed to alleviate out-of-pocket spending burden