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Drug Pricing Woes Linger as Medicare Mulls Point-of-Sale Changes

March 11, 2022, 10:35 AM

A Medicare proposal aimed at lowering out-of-pocket drug costs stops short of requiring that all discounts reach consumers at the pharmacy counter, industry groups say.

The proposed rule (RIN 0938–AU30) mandates that Medicare Part D plans apply all “price concessions” they receive from pharmacies to the final sale price. But it wouldn’t ensure the rebates that manufacturers pay to insurers and pharmacy middlemen also apply at the point of sale. Critics argue those rebates are shrouded in secrecy and have ultimately led to higher initial list prices.

Manufacturer rebates “artificially increase the negotiated price of drugs in the Medicare program,” Christine Simmon, senior vice president of policy and strategic alliances at the Association for Accessible Medicines, told the Medicare agency.

The proposal is a step in the right direction, but “additional work remains to remove harmful distortions in the Part D Program,” Simmon wrote in a comment letter.

The Centers for Medicare & Medicaid Services said in January that the proposed rule would reduce beneficiaries’ costs and improve transparency and competition in the Part D program. The agency has received more than 2,600 letters in response to the proposal, including from drugmakers and pharmacists who want to see additional action to deliver better prices to patients.

Trade groups say the CMS should require transparent information from pharmacy benefit managers—the middlemen that manage drug coverage on behalf of insurers—on whether the discounts they get actually reach patients. The groups also say the proposal doesn’t require PBMs to pass all pharmacy price concessions to beneficiaries in the coverage gap—the phase of Medicare coverage when a patient surpasses the temporary limit of what a health plan will pay for drugs.

PBMs, on the other hand, argue that the proposal would limit its function to bring lower drug costs to consumers. PBMs—which the Federal Trade Commission is eyeing for a potential probe—have repeatedly argued that drug manufacturer price setting is the root cause of high drug costs.

The Pharmaceutical Care Management Association, representing PBMs, says they save 40% to 50% on prescription drugs, an average of $962 per person per year.

The CMS didn’t immediately respond to a Bloomberg Law request for comment on its timeline for finalizing the proposed rule.

Rebates, Price Concessions

The proposed rule would revise the definition of “negotiated price” to also include direct and indirect remuneration (DIR) fees that health plans and PBMs charge pharmacies. DIR fees include money that plans collect from pharmacies that fail to meet certain quality metrics.

The rule would require Part D plans to apply all price concessions they receive from pharmacies at the point of sale, but it doesn’t require the same for the rebates they charge drugmakers. Critics have argued that because PBMs can profit from rebates, they may favor more expensive drugs in formularies.

Adding manufacturer rebates and other price concessions to the negotiated price could “more significantly reduce out-of-pocket costs for beneficiaries and improve access to medicines,” the Pharmaceutical Research and Manufacturers of America (PhRMA), the leading trade group for brand-name drugmakers, wrote in a comment letter.

PCMA, the PBM trade group, said the proposed rule is the latest in a line of agency policies that are “based on a fundamental misunderstanding of the mechanism through which pharmacy price concessions create a higher-quality and lower-cost prescription drug benefit.”

Requiring health plans to pass all potential pharmacy price concessions at the point of sale would prevent them from collecting any concessions later on, PCMA said in a comment letter. It argued that requirement would be “arbitrary, capricious, an abuse of discretion, and not otherwise in accordance with law.”

Pharmacy DIR fees represent “value-based contracting that Part D plans, through their PBMs, use to incentivize pharmacies to improve patient care, while helping to lower Part D premiums,” PCMA President and CEO JC Scott said in a statement.

Scott cited a recent report by management consulting firm Milliman and commissioned by PCMA that found the CMS rule would increase insurance premiums for one-third of beneficiaries that “may not be offset by a decline in cost-sharing.” Out-of-pocket costs may decrease with DIR fees applied at the point of sale, but PBMs wouldn’t be able to use these price concessions to lower premiums after the fact, the report found.

Coverage Gap

Pharmacy trade groups say the proposed rule could provide a “loophole” for PBMs because it doesn’t apply the new negotiated price definition to Part D beneficiaries in the Medicare coverage gap. Patients in that gap must pay a percentage of a drug’s total cost.

The proposed rule states that during non-coverage gap phases, the negotiated price would be “determined using the lowest possible reimbursement to the pharmacy.” For applicable drugs during the coverage gap, however, plans “would have the flexibility to determine how much of the pharmacy price concessions to pass through at the point-of-sale.”

The National Association of Chain Drug Stores said in its comments that the CMS should explicitly apply the new negotiated price definition for beneficiaries in the coverage gap. Without this, the group said the agency could allow PBMs and health plans to escape applying certain price concessions for a segment of Part D beneficiaries.

The National Community Pharmacists Association, which represents independent and smaller local pharmacies, told the CMS that its proposed rule “would permit PBMs to continue to play games with pharmacy price concessions for pharmacies and inflate prescription costs for the most vulnerable patients.”

That “would add needless administrative expenses by forcing the use of two systems, one within the coverage gap and the other outside of it,” the pharmacists group argued.

The PCMA said having pharmacy DIR fees apply at the point of sale “in most cases, but not necessarily in the coverage gap, introduces significant operational complexity” that will place a burden on health plans to comply with existing concession rules for some beneficiaries and new ones for others.

‘First Step’

Drugmaker and pharmacy groups recognize the proposed rule represents some progress in their fight to boost transparency around consumer drug costs and increase beneficiary savings.

Moving forward, they say the CMS should look at other PBM actions that may impact the health-care industry. The American Pharmacists Association, for example, called on the CMS to consider setting minimum reimbursement rates to pharmacies for dispensing medications. This area has gained increased attention recently as pharmacists have reported low reimbursement rates from health plans in exchange for distributing Covid-19 antiviral pills.

“This would provide adequate reimbursement under a sustainable business model that improves—and does not disrupt—Medicare beneficiaries’ access to pharmacy care,” Ilisa Bernstein, APhA’s senior vice president for pharmacy practice and government affairs, wrote to the CMS.

Once the proposed rule is finalized, Bernstein said, the CMS should “build on this first step of eliminating retroactive DIR fees by taking action to end the remaining devastating business practices of PBMs, which only increase costs for patients, pharmacies, and the federal government.”

To contact the reporter on this story: Celine Castronuovo at

To contact the editors responsible for this story: Alexis Kramer at; Karl Hardy at