Encore! EP216: How Medicare Part D Plans Became Addicted to Drug Rebates, With Chris Sloan From Avalere Health

Alex Azar, who is the current Health and Human Services (HHS) secretary (until January 21 anyway), came out with a reboot of the proposal that effectively halts the practice of pharma manufacturers paying rebates to Part D plans. This reboot is supposed to go into effect on 1/1/2022. But this podcast is less about this may-or-may-not-actually-happen rule and is more about the actual impact of removing drug rebates within this unintuitively constructed health care system of ours.

Should rebates go away, it’s actually a big deal that fundamentally could upend the heretofore-not-transparent messy middle of drug pricing. I’ll let Chris Sloan, associate principal over at Avalere Health, explain. Spoiler alert: The impact of killing pharma rebates to plans and PBMs (pharmacy benefit managers)? Bottom line, everybody’s insurance premiums go up in the current model when rebates go away.

A few episodes from now, I’m talking with Ge Bai about why this is a suboptimal and not forgone conclusion. But this is what we’ve got going on right now. So, look for EP306 coming up for more on that.

You can learn more at avalere.com.  

Chris Sloan, associate principal at Avalere, advises a number of clients—including pharmaceutical manufacturers, health plans, providers, and patient groups—on key policy issues facing the health care industry. Chris’s economic analyses of key policy proposals and issues, including drug pricing and the repeal and replace efforts around the Affordable Care Act, have been featured in a wide range of publications, including the Wall Street Journal, the New York Times, the Washington Post, Politico, Axios, and Vox.

02:35 “Rebates are a really big part of Medicare Part D.”
02:49 What the “follow the dollar” looks like in this scenario.
04:14 How rebates between PBMs and manufacturers work, and how list prices play into this.
05:31 How this system can hurt the patient, and how this new proposal works to change that.
06:42 Pricing a product as a PBM.
08:06 The total dollar value of PBM rebates.
10:50 Do we know how much PBMs are making in incentives?
13:29 Are PBMs helping or hurting the process?
16:18 Why pharmaceutical manufacturers may be more compelled to raise their prices thanks to large PBMs.
17:13 Perverse incentives in the system.
17:57 “At the end of the day, PBMs are still going to be employed by health plans.”
18:56 How a new model is combating the perverse incentive that raises prices for patients.
22:11 The trade-off involving premium prices in this new proposal.
24:38 “We’re not talking astoundingly large amounts of money.”
25:12 Why PBMs and health plans are against this proposal.
26:02 Why Pharma is for this.
26:51 The perverse incentives for health plans.
28:39 The benefit of Part D.
29:25 The advantage of huge rebates.

You can learn more at avalere.com.