Introduction to Pharma Rebates

[00:00:00] Stacey Richter: "Summer Short. Pharma Rebates: A Few Nuances You May Not Have Thought Of." Today I am speaking again with Ann Lewandowski,

Understanding the Complexity of Rebates

[00:00:26] Stacey Richter: So much can be said about pharma rebates or as I'm starting to call them after speaking with my guest today, Ann Lewandowski, monies received back from manufacturers or even post-sale concessions, and we get a little bit into this today why rebates is just so much linguistic gymnastics that I am over the word.

To listen to this episode or read the show notes with mentioned links, visit the episode page.

I mean, some of these monies received from manufacturers are labeled rebates, but not all the money that comes from manufacturers is usually called a rebate. Some of these dollars for sure, wind up in the pockets of the PBM/GPO or even in the pocket of the TPA. Allegedly, I guess if I'm thinking about that whistleblower case where $27 million of somebody else's rebates is alleged to have wound up in the EBC/TPA executive bonus pool.

Listen to that pod with Ann Lewandowski from earlier if you are not familiar. But regardless much has already been said about these, whatever we're calling former rebates on Relentless Health Value in the past.

The shows with Scott Haas, Mark Cuban, Chris Sloan, Pramod John, Paul Holmes, amongst others. I say all this to say that this show today is not some kind of Vulcan Mind Meld. Wherein all the insight there is on this vast topic gets compacted into your 20 minute drive home or whatever it is you happen to be doing right now.

Current Issues and Implications of Rebates

[00:01:50] Stacey Richter: Alternatively, this show is gonna summarize what's happening and being written right now about these whatever “pharma rebates” that has caught my eye. First up, an article by Austin Chelko. All links to everything I'm talking about, including all those earlier shows are in the show notes by the way, as usual.

But here is a paragraph from that article by Austin Chelko. "Despite per employee rebates paid to employers increasing almost threefold since 2017, our benchmarking data reveals total drug costs have still risen by close to 24% over that same time. So threefold increase in rebates back, but drug costs still are going up 24%.

"Health plans continue chasing rebates simply because they are presented as savings and dangled like a golden carrot. However, it does not address the cost problem as everyone would like. There are multiple long-term implications to this approach, ie, the rebate approach. Here are just a few.

"Implication one, rebate driven contracts block employers from pursuing lower cost generics, biosimilars, and therapeutic alternatives. Implication two. Rebates incentivize PBMs to support clinically immaterial patent extensions, and shifts the priority from comparative effectiveness. Implication three. Under most contracts, PBMs can hit any guarantee they set for a particular employer."

Listen to the show with Chris Crawford all about that.

"This happens by making formulary changes, cross-subsidizing drug channel guarantees, MAC manipulation, changing drug tiers, etc."

Genetic Testing and Rebates

[00:03:25] Stacey Richter: Right? So the stuff Austin mentions are for sure issues. And here's another one, and this is the one Ann Lewandowski discusses in the Summer Short that follows.

Rebate deals often shove genetic testing off the bus. No genetic testing to determine if a drug will work or maybe even is harmful for the member or patient. You can't genetic test and then make coverage decisions based on that genetic test if you want to keep the rebate.

So choose between knowing a drug will work because there's a genetic test available to determine this, in some cases, or option two, getting the rebate off the often crazy high list price. And this is really a rock and a hard place choice.

Ann Lewandowski, relative to genetic testing, cites a study in the conversation that follows about just how pharmacogenetic testing can reduce emergency room department visits for medication interactions.

Also, now I'm thinking about the show with Pramod John. There were two earlier Relentless Health Value episodes with him that get into this exact same genetic testing insight in some detail. It's becoming really inarguable that some drugs are just not gonna work for some people, and seriously, we want somebody running around who needs a blood thinner taking one that is not working? But then if you try to roll out the genetic testing, you don't get the rebate, right?

Now, you do have to watch some of these testing companies, though I had a bit of a personal run in with one of them. Certainly call me if interested. 

The Role of Plan Sponsors and Rebates

[00:04:54] Stacey Richter: Okay, one last really pretty key talking point before we kick into this Summer Short, and yet don't kill the messenger, but it would be disingenuous not to point out the service that rebates provide to some plan sponsors who are so inclined.

Here is a post by Peter Hayes. Peter wrote, "What often gets overlooked in discussions is the net impact of certain behind-the-scenes financial transactions. In this case, the rebates are directed to the plan sponsor who uses them to lower premium costs for everyone. However, this benefit comes at the expense of patients using medications and paying the full price for them.

"This situation effectively creates a regressive tax on sicker patients: Healthier members benefit from reduced premiums, while those who need critical medications end up paying more. Unfortunately, about 50% of Americans are not taking essential medications due to affordability issues, which ultimately leads to higher costs for everyone in the long run."

To this end, Peter Hayes cites an Adam Fein referencing new data from Milliman. Adam Fein wrote about that. He wrote, "As this Milliman report explains in most employer-sponsored PPO plans, rebates do not affect an employee's out of pocket costs, but could reduce employee contributions to their premiums."

Again, links in the show notes to all of this stuff, including the full report from Milliman.

So all of this is certainly food for thought as we think through actions and reactions and downstream impact.

Interview With Ann Lewandowski

[00:06:40] Stacey Richter: Today, as aforementioned, I am speaking with Ann Lewandowski. Ann Lewandowski is a nationally recognized award-winning healthcare executive. Most listeners probably know her last name, at the very least, from the Lewandowski versus Johnson & Johnson case that came out last year.

Also, as aforementioned, I had interviewed Ann earlier about the Pharma Rebate whistleblower case.

My name is Stacey Richter. This podcast is sponsored by Aventria Health Group, and here's my Summer Short with Ann Lewandowski. 

Ann Lewandowski, welcome to Relentless Health Value.

[00:07:13] Ann Lewandowski: Thanks, Stacey. I'm so pleased to be here.

Deep Dive into Pharmaceutical Rebates

[00:07:15] Stacey Richter: Many of our listeners are gonna be extremely familiar with pharmaceutical rebates, but why don't we just start at the very beginning here briefly. What is a pharmaceutical rebate? 

[00:07:25] Ann Lewandowski: A pharmaceutical rebate is very similar to other rebates that you have in your life, right? There may be something you purchase an appliance or even a bottle of liquor, and you get something that says, typically mail this in and we'll send you some money back.

Essentially, it's a post-sale concession that comes back to a plan sponsor in so many days. Importantly, for those wondering what about the anti-kickback statute, because many of you probably work in healthcare and saying, I can't do that in my line of business. They actually have been granted an exemption from the anti-kickback statute to allow this post-sale concession to come back to plan sponsors.

[00:08:06] Stacey Richter: So the old Safe Harbor. 

[00:08:08] Ann Lewandowski: Yes, thank you. The old Safe Harbor. 

[00:08:11] Stacey Richter: That all sounds fine and all. It's nice to get money back. But the one thing that always gets said whenever you say rebates, usually in the first two sentences, is just how opaque they are, how very mysterious this whole thing is. Why are they so often considered a black box?

[00:08:28] Ann Lewandowski: The easiest and most straightforward answer right now is that pharma has been able to classify them as trade secrets. Pharma companies don't wanna disclose them because they would have an economic impact potentially with all of their customers looking at a list of rebates and saying, I want the lowest one. 

[00:08:47] Stacey Richter: And PBMs have an equal and opposite reason for the opacity. In fact, sometimes I'm not even super sure which party at this point is the one squawking the loudest about prices being intellectual property. 

[00:09:00] Ann Lewandowski: Even if you look at the reporting laws, they have been deferred to as trade secrets. So, if you look at Minnesota, they have a beautiful PBM reporting bill that they put an annual report about, but all of the rebates are aggregated.

The PBMs are not named, and that's one of the challenges in trying to crack open this black box. But I do think that there are valid arguments to challenge that trade secret designation, which are that they do impact other people's economics as well. 

[00:09:31] Stacey Richter: The first thing that comes to mind is everybody else knows what everybody else's prices are. But then again, where there's mystery, there's margin. What's a rebate? Exactly. And what's an administrative fee? And just kind of all the games that are being played there. 

[00:09:43] Ann Lewandowski: That's a really great point, Stacey. I tend to try and classify it as post sale concession because I think that lumps in more of these other things.

But when the Attorney General of Texas went and filed their insulin pricing lawsuit, they had probably about 50 kinds of ways that these are classified. And I won't bore all your readers with the different types, but I'll send over, so maybe you can put it in the comments of the podcast, you know, the multiplicity of like all the things.

And so I, I do think, like, to say rebate, right? Because now all the PBMs are saying: “Oh, we're passing through the rebate. Don't worry about it. We're all good.” I think focusing exclusively on a singular type of post-sale concession is sort of like chasing a snowflake at this point. It's going to be hard to capture.

[00:10:40] Stacey Richter: And just to speak specifically about the impact of these rebates or post-sale concessions, if we wanna be more accurate, since as you just said, and as Paul Holmes said, actually really crisply in that episode from a year or so ago, a PBM can call these post-sale concessions, whatever they want. They could get back a hundred dollars, I don't know, from a pharma manufacturer, and call 40 or 50 or 10 or 95% of those dollars a rebate.

And guess what? They can call whatever dollars they want the rebate portion. They're the ones that are defining what rebate actually means. And anyone saying that a plan sponsor is getting back a hundred percent of the rebates, it's kind of meaningless if you think about it in this regard.

But what are some of maybe the less obvious problems here, besides the fact that a hundred percent of rebates is a relatively meaningless statement just given the linguistic gymnastics afoot.

Challenges with Pharmacogenomics Testing 

[00:11:33] Ann Lewandowski: One of the biggest challenges right now is the impact on pharmacogenomics testing. Manufacturers use rebate dollars to get essentially what's a direct to label agreement with a PBM.

So you're not adding prior authorization criteria. And then you know, that's usually in the name of patient access, which I think a lot of people can get behind.

But the challenge is changing an FDA label is expensive, it's time consuming and sponsors, drug sponsors need to justify that to their shareholders. The problem is we're in a world where innovation and lab testing and pharmacogenomics are accelerating at such a rapid pace that those labels aren't keeping up.

[00:12:20] Stacey Richter: So what you're talking about there is every pharmaceutical product has a package insert or a label. It's called a couple of different things. And that's what's approved by the FDA. It's the, you know, if you actually read one, it's the, this is how this drug works and this is what it does, exactly, and specifically. Like it's in, it's indicated for these conditions, and here are the adverse events that you can expect.

It's just, it's got all of those, effectively what it's saying is this is who is an appropriate patient for this medication based on its approval like net net. That's what's happening here. 

[00:12:54] Ann Lewandowski: And usually these are very large documents. Back to sort of this pharmacogenomics testing issue, if you're a plan sponsor, somebody paying for this medication, you want it to be an effective medication for that person, right?

And pharmacogenomics is starting to allow people to really understand when a medication is going to be effective or not. You've been on sort of an ER kick, so I'll highlight that one study actually reported that pharmacogenomics testing can reduce emergency department visits for medication interactions by 42%.

[00:13:33] Stacey Richter: Wow. Wait, wait. So 42%. And it's been highly talked about for many, many years, just how many deaths and hospitalizations are due to pharma contraindications and just interactions, right? Like especially with older people who are taking multiple drugs, they don't realize that they interact.

And what I'm understanding you say and Pramod John was on the pod a while ago talking about this, just like there's so many drugs where if you do a form, like if you do a genetic test you can see right outta the gate that this drug's not gonna work. You can see right outta the gate that the person's gonna have an issue with it or, or if they take these two drugs concurrently, there's gonna be an issue. So that's what you're talking about. 

[00:14:11] Ann Lewandowski: Exactly. Or it could be, wow, this blood clotting medication isn't gonna work for me. I end up with a deep vein thrombosis in the ER and need that fixed like that would be captured in that 42% in reduction. 

[00:14:26] Stacey Richter: All right, so what does that have to do with rebates? 

[00:14:27] Ann Lewandowski: Like I said at the beginning, this direct to label agreement, that happens often with older medications in particular, the label does not include a pharmacogenomics test. And so it can create a rebate wall where if you want to seek those rebates, you actually can't have pharmacogenomics testing or you might put those rebates at risk.

[00:14:51] Stacey Richter: Okay. This is what I'm understanding, and for the GLP-1s, this is something that Chris Crawford talked a lot about, where basically the deal that is brokered between the PBM and the pharma company is you only get the rebates if you don't, it's basically all appropriate patients. And the second that you start limiting with pharmacogenomic testing or however else you wanna limit, the second that you put limits that are greater than whatever the label says, you just forwent all the rebates, rebates out the window, no rebates for you.

[00:15:22] Ann Lewandowski: Yep. Like that, good old Seinfeld Soup Nazi no soup for you if you add on. That's really a problem in an era of very rapid genetic sequencing or genetic understanding. Like I said, I think there are reasons, right? Changing the FDA label is difficult, time consuming, and you have to justify that. 

At the same time, I think if what you're trying to do is get the right medication to the right patient, it does create some challenges. 

[00:15:52] Stacey Richter: Yeah. Like if you're trying to do a value-based formulary, for example, and Nina Lathia talked a lot about this in that earlier episode. I can just see how this would be a super big issue if you're actually trying to get the right med to the right patient and because rebates are so, I mean, as we all know, list prices are really high. Rebates can be giant. If you forego the rebate now as a plan sponsor, you, you're paying list. It's just, yeah, that's, that's tough. 

[00:16:20] Ann Lewandowski: I think this is the reason why there are opportunities, like as biosimilars come to market and there are low list price products, those become so much more interesting because they remove this Sophie's Choice for plan sponsors where, you know, what do I do?

Do I chase the rebate? Or do I really create a value-based formulary where I am looking at who is actually going to respond to this medication because I don't wanna waste even $500 or $2 on prescribing somebody something that's just not gonna work based on their biochemistry and genetics. 

[00:16:58] Stacey Richter: Conundrum. 

[00:16:59] Ann Lewandowski: Yeah. 

[00:16:59] Stacey Richter: Yeah. Pay more. It's just almost like follow the latest science and you'll wind up counterintuitively paying way more due to the limitations of contracting. 

[00:17:10] Ann Lewandowski: You'll definitely find yourself between a rock and a hard place. 

[00:17:13] Stacey Richter: If you're trying to do a value-based something or other, like for example, doing PGX testing, pharmacogenetic testing, which can determine whether certain medications are gonna work or, or not work, which I could have life-threatening clinical consequences to patients.

You're saying, okay, fine. I won't do any of that stuff such that I can get this rebate. 

[00:17:35] Ann Lewandowski: It's not just life-threatening consequences. Sometimes we get a little focused on that, but I find often health plan sponsors don't consider, what does it mean to accumulate disability because you're not on the right medication either. And you have different types of spending.

Say you sponsor a long-term disability policy, you could potentially see increased spending there because people aren't getting onto the right medication. And that's, personally, I think that's a really damaging situation for both a person, but also for an employer to be paying somebody, you know, 50, 60, whatever percent of their salary to literally do nothing simply because they're not on the right medication.

I think that's really a horrifying scenario for everyone. 

Conclusion and Contact Information

[00:18:25] Stacey Richter: Ann Lewandowski, if someone is interested in learning more about your work where would you direct them? 

[00:18:30] Ann Lewandowski: LinkedIn, or you could reach out to me at ann@patientvalueinsights.com or patientvalueinsights.com. 

[00:18:37] Stacey Richter: And we will put these links in these show notes.

Ann Lewandowski, thank you so much for being on Relentless Health Value today. 

[00:18:43] Ann Lewandowski: Thanks Stacey. It's been such a pleasure to join you.