A new Schaeffer Center white paper finds almost half of individuals with Medicare Part D coverage would see a reduction in out-of-pocket spending if patient cost-sharing were based on the price negotiated after the rebate (or net price), rather than the pre-rebate list price.
“Drug rebates have become an increasingly significant component of the Part D program, but our analysis shows beneficiaries are not necessarily benefiting in terms of out-of-pocket spending,” explained Schaeffer Center Associate Director Erin Trish, who co-authored the analysis.
“Although rebates help keep Part D premiums low, they do so in a way that disadvantages those who rely on high cost, high rebate drugs,” says co-author Geoffrey Joyce, Schaeffer Center director of health policy. Joyce and Trish are also faculty at the USC School of Pharmacy.
The study team – which included Trish, Joyce, and Schaeffer Center Research Programmer Katrina Kaiser –used 2016 Medicare Part D claims data to conduct the analysis. To model the policy change basing cost-sharing on net price, rather than list price, they discounted the list price of each claim by the estimated rebate and calculated what the patient’s cost-sharing would have been under this alternative scenario.
The researchers found that basing cost-sharing on net price would reduce out-of-pocket spending for about 47 percent of beneficiaries who do not receive low-income subsidies. For some, the amount would be considerable: approximately 20 percent of beneficiaries would save more than $100 and almost one percent would save more than $1000 annually.
The study also suggests another important advantage to this net-price shift: it would reduce the number of consumers reaching Part D’s catastrophic coverage phase, during which the federal government pays most of the drug costs. The authors found that 36 percent fewer beneficiaries would reach catastrophic coverage, which would result in a 19 percent reduction in federal reinsurance spending.
The findings show overall savings could be substantial for many patients. The authors note that one concern blocking this reform is that it would likely result in higher premiums. However, the authors also note that that is because some beneficiaries are paying more out-of-pocket, which helps to reduce premiums for everyone. The authors urge federal policymakers to consider implementing this change to how Medicare Part D cost sharing is calculated. Either alone or in conjunction with other reforms, basing rebate amounts on net prices rather than list prices would limit beneficiaries’ out-of-pocket spending and make cost-sharing more reflective of the actual cost of the drug.
* Rebates – as a share of total drug spending – have grown considerably over the last decade.
* Because of how rebates are implemented in Medicare Part D, patient cost-sharing is based on the list (pre-rebate) price of drugs, not the net price reflecting these negotiated discounts.
* If cost-sharing were based on net price, it would reduce out-of-pocket spending for nearly half of Part D beneficiaries who do not receive low-income subsidies.
* Approximately 20 percent of these beneficiaries would save more than $100 per year and about one percent would save more than $1,000 per year.
* Basing cost-sharing on net price, rather than list price, would provide meaningful financial relief to many Part D beneficiaries.
An important paper on a crucial reform. Worth a read.