PSG Position: Trump Administration Rebate Proposal



Dave Borden, Chief Executive Officer
February 25, 2019

On January 31, the Trump Administration released a proposal that would require pharmacy benefit managers (PBMs) and insurers to pass through 100% of Medicare rebates to the patient. This proposal, if passed, would remove any ability for PBMs or insurers to retain rebates. While the proposed rule only applies to Medicare plans and members, it is often the case that commercial markets (e.g., self-funded employers) follow what happens in the Medicare markets thus, the new rule may eventually apply to every plan sponsor who pays for drugs for its members.

For more than 20 years, PSG has advocated within the industry for positive change within the drug management supply chain that drives more transparency and control to the plan sponsors. We support and strive for greater transparency, lower overall drug costs for plan sponsors, and affordability for members/consumers which come in the form of lower drug prices, lower out of pocket expenses and lower premiums.

In theory, the current system of rebates between manufacturers and PBMs should allow for these objectives to be met – and this approach has allowed PBMs to very effectively negotiate with drug manufacturers to keep net cost increases relatively low. However, the move to high deductible health plans and benefits designs that were developed prior to the advent of specialty drugs (e.g., Med D), has exposed fundamental weaknesses to this approach including lack of affordability for members who are exposed to full list price, misaligned incentives – between PBMs and plan sponsors – and overall lack of transparency in the current system. As a result, the pursuit of rebates can lead to utilization of drugs that are not the lowest cost alternatives for a given condition.

Moving rebates to offset members’ out-of-pocket expense is one option; however, it could have unintended consequences that should be considered carefully. The proposed rule as currently written favors drug manufacturers and would likely diminish the willingness and ability of PBMs and health plans to negotiate effectively on behalf of plan sponsors. The current value of rebates generated by PBMs to plan sponsors would effectively shift away from the plans and would become “member rebates.”  If PBMs and health plans suffer diminished ability to negotiate with drug manufacturers, overall drug costs will rise over time, either directly or indirectly in the form of higher plan premiums. Similarly, members would not have the ability to individually affect the value of the “rebate” they receive and, likewise, they would have no ability to negotiate with manufacturers in a way that would mitigate future list price increases thus, not addressing the fundamental concern – ever increasing drug list prices.

Under the proposed rule, the long-established system would be upended and place the burden of administering the new system on the shoulders of plan sponsors, health plans and PBMs. The proposed rule does not address the issues of misaligned incentives that prevent members from getting the best and most cost-effective treatment for their conditions or transparency in rebates. Members would likely struggle to understand the holistic changes that could occur in their experiences. Changes we anticipate include high plan premiums, significant formulary changes, and increased burdens on members related to navigating therapeutic options based on price vs. value. Increased transparency, addressing member affordability, and paying for value can be accomplished with adjustments to the current system that do not have the unintended consequences of higher premiums and unabated list price increases.

PSG currently designs and administers high value, low net cost formularies for our clients under the current system of rebating. We aggressively negotiate on behalf of our clients during the PBM contracting process to provide optimal optionality and flexibility to adjust as the market changes. PSG utilizes technology, advanced data analytics, and clinical expertise to optimize health outcomes in part by reducing inappropriate utilization of high-cost medications. Effective management of medication use is a critical part of controlling overall healthcare costs.

Since the risk of removing the current system of rebates is increasing costs for members and plan sponsors, we also recommend that the current system of couponing and copay assistance by drug manufacturers directly to consumers be addressed in conjunction with the proposed rule. Manufacturers provide additional funding outside of the existing rebate structure that can also serve to reduce members’ out-of-pocket expenses as well as lower the net price of drugs even further. Under current regulation, these monies are largely prohibited from being made available to members in Medicare and Medicaid. For members in commercial plans, these funds are available right now and exist in addition to existing rebates funds and should also be utilized and applied to help with reducing out of pocket expenses.

PSG would like to see more transparency introduced into the current system first and foremost to help consumers afford their medications and navigate an increasingly complex drug landscape.



Dave Borden has more than 27 years of experience in the health care and pharmacy benefits industry, working primarily with large self-insured employers. He has provided consulting services to some of the largest plan sponsors in the country. A representative list of clients Dave has served includes Exelon Corporation, Sara Lee Corporation, ConocoPhillips, SBC, Blockbuster, Baylor Healthcare System, Tenet Hospitals, Christus Health, Catholic Health Partners, Carolinas Healthcare System, USAA, ACCOR, Wyndham International, and a variety of other nationally recognized employers.