Last month, the Government Accountability Office (GAO) recommended that the Centers for Medicare & Medicaid Services monitor the effects of rebates on Part D plan formularies and beneficiary spending obligations. The agency reviewed the practice by which drug manufacturers give plans rebates in exchange for preferential placement of their medications on the Part D plan’s formulary, or list of covered drugs. These rebates go directly to the plan and can be used to reduce overall costs and premiums, but do not reduce the beneficiary cost-sharing obligation for that drug. 

Historically, concerns have been raised about the ways in which this practice can inflate drug prices and about the fairness of a practice that, in some ways, results in people who take higher cost medications subsidizing lower premiums for all. Changing the way rebates are used by plans, however, might result in sharp premium increases.

The GAO was charged with examining rebates in the Part D program, and found that plan sponsors received $48.6 billion in rebates in 2021, the year they studied, and that these rebates were highly concentrated in three therapeutic classes: 1) endocrine metabolic agents, including anti-diabetes drugs, 2) blood modifiers, including anti-stroke drugs, and 3) respiratory agents, including anti-asthma drugs. 

Their research found that rebates “may reduce plan sponsor payments for drugs with a higher gross cost to an amount lower than the payment for a competing drug with a lower cost.”  Rebates lower plan and Medicare payments (because Medicare payments to plans are based on drug costs after rebates) but do not reduce beneficiary cost-sharing obligations, which are based on gross price before accounting for rebates. GAO found that, after accounting for rebates, beneficiary payments were higher than plan sponsor payments for 79 of the 100 drugs receiving the most rebates.

GAO notes that CMS uses drug rebate data to ensure the accuracy of payment to plan sponsors but does not use this data in its oversight of plan formulary design. Their analysis found that rebates “may influence formulary design in ways that could affect beneficiary access for certain drugs.”  Medicare Rights Center shares GAO’s skepticism regarding the CMS response that “an evaluation of rebate information is unnecessary given its clinical formulary review, and that CMS is statutorily prohibited from interfering with drug manufacturer and plan sponsor negotiations.” As the report notes, monitoring rebate and expenditure data would not require interference in price negotiations, and it could provide CMS and Congress insight on the extent to which rebates’ influence on formularies could impact beneficiaries.

The report also notes that monitoring of rebates will be particularly important as the agency implements certain provisions of the Inflation Reduction Act of 2022, which will change Part D plan sponsor, beneficiary, and Medicare drug spending responsibility and may affect formulary design and rebates.

Read the full report here

Read more about plan and manufacturer rebates.