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Our perspective on the new Part D rebate rule

Photo of Kalderos CEO Jeremy Docken with text saying
Excluding Medicare Part D rebates from “safe harbor” will help patients by lowering out-of-pocket costs

 

In November 2020, the U.S. Department of Health and Human Services (HHS) released a final rule that has the potential to exert sweeping impacts on the financial arrangements between drug manufacturers, pharmacies, PBMs and patients. Kalderos welcomes the new rule as a way to correct misaligned incentives in the drug distribution system and ultimately lower the cost of drugs for patients. 

 

With the Kalderos Drug Discount Management platform’s capabilities in data exchange and facilitation of third party payments, we are well-positioned to respond quickly and effectively to the change in landscape and serve as the preferred point-of-sale chargeback administrator for drugmaker partners of every size.  



Background

 

The U.S. healthcare system is built on free market principles, and this new rule continues to rely on the free market to bring down drug costs for seniors. Under the new rule, PBMs will continue to use their negotiating power to secure lower drug prices for seniors. However, instead of collecting rebate dollars from manufacturers to reduce premiums, PBMs will negotiate discounts that reduce Medicare beneficiaries’ prices at the pharmacy counter. 

 

PBMs have shown they are powerful negotiators. Net drug prices have grown slowly over the past few years under the current rebate system, due to PBMs’ capability to negotiate price concessions from drug manufacturers. 

 

Unfortunately, before the new rule, the lower net prices didn’t directly benefit the patients who needed the rebated drug. Instead, the rebates were used as a funding mechanism, providing cash flow to PBMs and plans. This cash flow was used to reduce premiums for all beneficiaries.

 

While all patients benefited from the reduced premiums, patients who needed brand-name medications paid high out-of-pocket costs for their drugs, especially under coinsurance benefit designs where the patient is required to pay a certain percentage of the overall drug costs. Because the point-of-sale price was based on the undiscounted list price, coinsurance amounts were much higher than they might have been if the coinsurance was based on the lower, negotiated price.  

 

Over the last several years, HHS became concerned that rebates create a perverse incentive for manufacturers to increase the list price of their drug. This is because most rebates are determined by multiplying a negotiated rebate percent by the list price of the drug. Manufacturers have complained that, in a sought-after formulary class such as insulin, they felt pressure to increase the list price of their drugs in order to increase total rebate dollars for the PBM. This list-price increase enabled manufacturers to remain competitive in their goal of attaining preferred formulary placement, so they felt they had little choice but to comply. 

 

By targeting safe harbors in the federal Anti-Kickback Statute (AKS), HHS is encouraging the market to move from traditional rebate agreements to agreements where PBMs negotiate discounted prices from manufacturers that will reduce the price of the drug reflected at the pharmacy counter. That way, both the plan and the patient can benefit from the reduced price. The plan benefits because the reimbursement will be based on the lower price, and the patient benefits because any coinsurance paid will be based on the same negotiated price. 

 

While nothing in the new rule prevents PBMs from continuing to negotiate traditional rebates with manufacturers for Part D, any such rebate agreement would no longer be protected by a safe harbor, placing the parties at greater risk of being found to have entered into an illegal kickback relationship — a criminal offense. And while the new rule applies only to Medicare Part D, not private payers, it will likely have broader impact across the industry. 



How Kalderos can help

 

With just a little over a year until the rebate exclusion goes into effect, manufacturers are faced with plenty of operational challenges to resolve as they seek new ways to compliantly effectuate point-of-sale drug discounts. 

 

The good news is that Kalderos’ Drug Discount Management platform was designed for this moment, with the ability to manage any type of discount or rebate across many programs. 

 

Based on the current capabilities of our robust, data-driven platform, we are confident in our ability to effectuate the point-of-sale chargebacks discussed in the newly defined safe harbor. In fact, we’ve already built our platform to prevent 340B duplicate discounts in the new point-of-sale chargeback world. 

 

We look forward to continuing to deliver the tech-enabled solutions that pass savings onto patients and support the health of everyone.