A rising refrain, together with the Trump administration, is asking for a rethinking of after-the-fact drug reductions that some say contribute to rising costs.

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An more and more fashionable offender within the debate over excessive drug costs is the pharmaceutical rebate, the after-the-fact reductions that type the guts of the nation’s arcane — many would say damaged — marketplace for prescribed drugs.

Now, a rising refrain needs to eliminate them, or a minimum of change the best way they’re utilized after drug corporations have already set their costs. Rebates, critics say, have pushed up the record value of brand-name medicine, which shoppers are more and more chargeable for paying. Insurers typically get to maintain the rebates with out passing them alongside to their members.

Final week, the drug trade’s largest commerce group, the Pharmaceutical Analysis and Producers of America, took intention on the rebate system, proposing a change to the best way middlemen deal with rebates, and the way these corporations are paid.

And the Trump administration has taken step one towards eliminating a “safe-harbor” provision that permits rebates to be paid in Medicare’s Half D drug program with out violating federal anti-kickback legal guidelines.

Most of the rebate — and sometimes, all of it — goes to those who are paying the bill for the drugs, mainly insurers or large employers who cover their workers’ health care. Pharmacy benefit managers usually keep a percentage of the rebate as payment.

Insurers and employers get their rebates in lump sums that they say are often used to offset general health care costs and to hold down premiums.

What’s all the fuss about?

Although rebates have been used to negotiate drug prices for years, they didn’t catch much attention until 2011, when CVS, which operates one of the country’s largest pharmacy benefit managers, announced it was excluding 34 drugs from its national formulary.

The rebate then became a potent negotiating tool, pitting drug companies against each other in an effort to secure a place on the formulary. Other benefit managers, like Express Scripts, soon followed suit.

But that has led to an escalating game, where drug companies raise their list prices to maintain their profits and to offer bigger rebates.

Some say the system has created a series of perverse incentives, where the middlemen have an interest in keeping the list price high. In addition to pharmacy benefit managers, wholesalers and pharmacies are also paid based on a percentage of the list price.

Drug makers — on the defensive after weathering attacks by President Trump, other elected officials and the public — have pointed fingers at the pharmacy benefit managers, saying they are under pressure to raise list prices to keep all of these players happy.

Consumers and high drug prices

Many Americans are struggling to afford life-saving treatments for diseases like diabetes, multiple sclerosis, and cancer.

Last week, the Trump administration signaled that it might try to end the “safe harbor” exemption that protects rebates from falling under anti-kickback laws. That would affect government programs like Medicare’s Part D drug plans, but it wouldn’t affect rebates in private plans — like those offered by employers. Changes to large programs like Medicare often have a rippling effect across the industry.

More coverage of high drug prices

Pharmacy benefit managers and insurers warn that eliminating rebates could face legal hurdles, and said that the move could wind up raising consumers’ premiums because insurers and employers use their rebate payments to plug other holes.

“Plan costs in the short run would go up, that’s just the reality of the situation,” said David Dross, the national leader of the managed pharmacy practice at Mercer, which negotiates with pharmacy benefit managers on behalf of employers.

Doing away with rebates won’t fix other problems. The companies that sell the most expensive drugs — newly approved products that cost hundreds of thousands of dollars a year — don’t offer many discounts because they have little to no competition. IQVIA, the drug research firm, found that rebates amounted to about 40 percent of the list price for treatments of some diseases, like diabetes. But they reduced the list price by only 10 percent in treating other diseases, like cancer.

The Trump administration is also considering a proposal, first floated last fall, that would give a portion of rebates to Medicare beneficiaries at the pharmacy counter. The move would lower out-of-pocket costs for people with high drug bills, but could increase premiums for Medicare drug plans. Private insurers, like UnitedHealthcare, have also recently introduced plans that offer these “point-of-sale” rebates to some of their members.

How likely are rebates to disappear?

It’s unclear.

The drug industry, though it hasn’t specifically called for an end to rebates, has targeted the discounts and blamed the pharmacy benefit managers for the current situation. The industry is one of the most powerful lobbying forces in Washington, and with the support of Mr. Azar — until recently a top executive with Eli Lilly — they are not to be underestimated.

But doing away with the rebate would create disruption that may be fought by a host of players.

“Things that seem simple, like let’s cut the list price, are not actually simple,” said Adam J. Fein, of the Drug Channels Institute.

Under the current rebate system, he said, “unless everybody does it at the same time, you can’t reset the system. That’s the challenge of this.”



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