During this briefing, panelists discussed the mechanisms of pharmaceutical rebates in Medicare Part D and commercial insurance. The audience left with more information on the origins of the rebate system, the actors responsible for negotiation, and the impact of rebates on prescription drug prices.
- Gerard Anderson, Ph.D., professor, Johns Hopkins University Bloomberg School Public Health
- Lida Etemad, PharmD, M.S., vice president, Pharmacy Management Strategies
- Lance Grady, vice president, Avalere Health
- Jack Hoagley, Ph.D., M.A., research professor emeritus, Georgetown University Health Policy Institute
- Ross Margulies, J.D., MPH, associate, Foley Hoag LLP
12:00 p.m. – 12:05 p.m. Welcome and Introductions
- Sarah J. Dash, MPH, president and chief executive officer, Alliance for Health Policy, @allhealthpolicy
- Erica Socker, Ph.D., director of Health Care, Laura and John Arnold Foundation, @LJA_Foundation
12:05 p.m. – 12:45 p.m. Panelist Opening Remarks
- Lance Grady, vice president and team lead, Avalere Health
- Ross Margulies, J.D., MPH, associate, Foley Hoag, LLP
- Lida Etemad, Pharm.D., M.S., vice president, Pharmacy Management Strategies, UnitedHealthcare—Employer & Individual, Community & State
- Jack Hoadley, Ph.D., M.A., research professor emeritus, Georgetown University Health Policy Institute
- Gerard Anderson, Ph.D., professor, Johns Hopkins University Bloomberg School of Public Health
12:45 p.m. – 1:30 p.m. Question and Answer Session
All materials can be found in full at the links provided.
Key Resources (listed chronologically, beginning with the most recent)
“As a PBM and an Employer, We Know Rebates and Innovation Lower Drug Costs.” Merlo, L. Morning Consult. October 3, 3018. Available at http://allh.us/xqJp.
“Association of Prescription Drug Price Rebates in Medicare Part D with Patient Out-of-Pocket and Federal Spending.” Dusetzina, S., Conti, R., Yu, N., Bach, P. JAMA Internal Medicine. August 1, 2018. Available at http://allh.us/CyFE.
“Antitrust Implications of HHS Proposal to Limit Manufacturer Rebates.” Barker, T., Margulies, R., Schulwolf, E. Foley Hoag LLP. August 2018. Available at http://allh.us/CndB.
“Meet the Rebate, the New Villain of High Drug Prices.” Thomas, K. New York Times. July 27, 2018. Available at http://allh.us/PkXW.
“A Primer on Prescription Drug Rebates: Insights into Why Rebates Are a Target for Reducing Prices,” Dieguez, G., Alston, M., Tomicki, S. Milliman. May 2018. Available at http://allh.us/FTG8.
‘The Impact of Prescription Drug Rebates on Health Plans and Consumers.” Roehrig, C. Altarum Institute. April 2018. Available at http://allh.us/6XxC.
Additional Resources (listed chronologically, beginning with the most recent)
“An Overview of the Medicare Part D Prescription Drug Benefit.” The Henry J. Kaiser Family Foundation. October 2018. Available at http://allh.us/9t4h.
“Drug Rebates Aren’t ‘Kickbacks.’” Antos, J., Capretta, J.C. American Enterprise Institute. September 17, 2018. Available at http://allh.us/Dm6p.
“Pharmaceutical Reference Pricing: Does It Have a Future in the U.S.?” Robinson, J. The Commonwealth Fund. September 2018. Available at http://allh.us/EcFf.
“Eliminating Drug Rebates Requires Complex Solutions.” Brantley, K., Grady, L., Olsen, M., Tiernan, M. Avalere Health. August 16, 2018. Available at http://allh.us/KGrw.
“A System Without Rebates: The Drug Channels Negotiated Discounts Model.” Fein, A. Drug Channels Institute. August 2, 2018. Available at http://allh.us/jaBv.
“Current and New Approaches to Making Drugs More Affordable.” CVS Health Corporation. August 2018. Available at http://allh.us/tHEP.
“Prescription Drug Rebates and Part D Drug Costs: Analysis of Historical Medicare Part D Drug Prices and Manufacturer Rebates.” Johnson, N., Mills, C., Kridgen, M. Milliman. July 16, 2018. Available at http://allh.us/WvMD.
“Premium Impact of Removing Manufacturer Rebates from the Medicare Part D Program.” Fitzpatrick, R., Carlson, C. Oliver Wyman. July 6, 2018. Available at http://allh.us/WkAa.
“Pharmacy Benefit Managers Are Not the Cause of High Prescription Drug Prices.” Brannon, I. The Cato Institute. June 6, 2018. Available at http://allh.us/WVwT.
“Snapshots of Recent State Initiatives in Medicaid Prescription Drug Cost Control.” Young, K., Garfield, R. The Henry J. Kaiser Family Foundation. February 2018. Available at http://allh.us/drtm.
“Rx Pricing Along the Supply Chain.” Altarum Institute. 2018. Available at http://allh.us/nV6F.
“Pharmaceutical Benefit Managers, Brand-Name Drug Prices, and Patient Cost Sharing.” Ge, B., Sen, A., Anderson, G. Annals of Internal Medicine. 2018. Available at http://allh.us/3T7e.
“Primer: Prescription Drug Prices: Discounts, Fees, and Effects on Part D.” O’Neill Hayes, T. American Action Forum. October 2017. Available at http://allh.us/K8VE.
“Increasing Prices Set by Drugmakers Not Correlated With Rebates.” Pharmaceutical Care Management Association. June 2017. Available at http://allh.us/PGtF.
“The Pharmaceutical Supply Chain: Gross Drug Expenditures Realized by Stakeholders.” Vandervelde, A., Blalock, E. Berkeley Research Group. January 2017. Available at http://allh.us/8xUR.
“Branded Prescription Drug Spending: A Framework to Evaluate Policy Options.” Ballreich, J., Alexander, C., Socal, M., Karmarkar, T., Anderson, G. Journal of Pharmaceutical Policy and Practice. 2017. Available at http://allh.us/aAJv.
“Reducing Branded Prescription Drug Prices: A Review of Policy Options.” Alexander, C., Ballreich, J., Socal, M., Karmarkar, T., Trujillo, A., Greene, J., Sharfstein, J., Anderson, G. Pharmacotherapy: The Journal of Human Pharmacology and Drug Therapy. 2017. Available at http://allh.us/KmNv.
|Johns Hopkins University Bloomberg School of Public Health, Professor
|Lida Etemad||UnitedHealthcare – Employer & Individual, Community & State, Vice President of Pharmacy Management Strategies|
|Lance Grady||Avalere Health, Vice President and Team Lead
|Georgetown University, Research Professor Emeritus in Health Policy Institute
|Ross Margulies||Foley Hoag, LLP, Associate
Experts and Analysts
|American Enterprise Institute, Wilson H. Taylor Scholar in Health Care and Retirement Policy
|Peter Bach||Memorial Sloan Kettering, Director of the Center for Health Policy and Outcomes
|Foley Hoag, Partner and Co-Chair of the Healthcare Practice
|Shawn Bishop||The Commonwealth Fund, Vice President of Controlling Health Care Costs and Advancing Medicare
|Thomas Bulleit||Ropes & Gray, Partner
|Milliman, Principal & Consulting Actuary
|Stacie Dusetzina||Vanderbilt University School of Medicine, Associate Professor of Health Policy and Ingram Associate Professor of Cancer Research
|Sarah Emond||Executive Vice President and Chief Operating Officer, Institute for Clinical and Economic Review
|Adam Fein||Drug Channels Institute, Chief Executive Officer|
|University of California Hastings, Arthur J. Goldberg Distinguished Professor of Law and Director of the Institute for Innovation Law
|Troy Filipek||Milliman, Principal and Consulting Actuary
|Northwestern University Kellogg School of Management, Associate Professor of Strategy
|University of Oklahoma College of Pharmacy, Clinical Coordinator of Pharmacy Management Consultants
|Larry Kocot||Klynveld Peat Marwick Goerdeler, Principal
|Neeraj Sood||University of Southern California Schaeffer Center for Health Policy & Economics, Vice Dean for Research and Professor, Sol Price School of Public Policy
Government and Government-Related
|John Coster||Center for Medicaid and CHIP Services, Director of the Division of Pharmacy
|John O’Brien||U.S. Department of Health and Human Services, Deputy Assistant Secretary for Planning and Evaluation|
|Matt Salo||National Association of Medicaid Directors, Executive Director
|Lauren Aronson||Campaign for Sustainable Rx Pricing, Executive Director
|Andrew Barnhill||GlaxoSmithKline, Director of Federal Policy|
|Kristin Bass||Pharmaceutical Care Management Association, Senior Vice President of Policy and Federal Affairs
|Andrew Cournoyer||Precision for Value, Vice President and Director of Payer Access Solutions
|Ed Francis||West Monroe Partners, Senior Director and National Life Sciences Practice Lead
|Emily Katz||Express Scripts, Senior Director of Government Affairs
|Kim Love||Bristol-Myers Squibb, Director of Strategic Alliance Development|
|Patients for Affordable Drugs, President and Founder|
|Natalie Pons||OptumRx, General Counsel of Policy and Regulatory Affairs
|Lori Reilly||PhRMA, Executive Vice President, Policy, Research, & Membership|
|Pam Roberto||PhRMA, Deputy Vice President of Policy & Research|
Please note: This is an unedited transcript. Note: This is an unedited transcript. For direct quotes, please see video at http://allh.us/TkPcm SARAH DASH: Good afternoon everybody. Hope everyone’s enjoying your lunch. Hello. I am Sarah Dash; President of the Alliance for Health Policy and I’d like to welcome all of you to today’s briefing. We’ve all been waiting with bated breath, sorry for the pun. This briefing is on rebates in the prescription drug supply chain and without further ado, I just want to introduce Erica Socker. She is Director of Health Policy for the Laura and John Arnold Foundation, which is supporting today’s briefing. She’s going to make some brief opening remarks and then we’re going to kick off our panel. Erica. ERICA SOCKER: Thank you, Sarah. So, as Sarah noted, my name is Erica Socker and I’m with the Arnold Foundation. I just wanted to start by thanking the Alliance for hosting today’s event on prescription drug pricing, and wanted to thank all of you for attending and for showing interest in this topic. How we deal with rising prescription drug costs is one of the key challenges we face. Prescription drug spending accounts for a significant share, 17 percent about, of our total healthcare spending, and prescription drug prices have risen really dramatically over the past decade. These skyrocketing costs put budgetary pressure on Medicare and Medicaid and they matter a great deal to patients who are having trouble affording the medications that they need. The overall objective of the Foundation’s healthcare portfolio is cost containment, and we’re really interested in that because we want to improve affordability of care for governments, for employers, and for families. Prescription drug prices are a big part of this for all the reasons I laid out and it’s a key focus of the Foundation’s work. As part of our efforts to lower drug prices, we’re supporting research to help better understand the drivers of prescription drug prices, and we’re also supporting work to develop effective policy solutions and to build support for these solutions. Reducing high and rising drug costs will require addressing the issue from multiple different angles, and our strategy reflects that. We tend to have four objectives in our work. The first is fostering greater price competition in the pharmaceutical market; improving the way Medicare, Medicaid, and other payers pay for drugs; exploring alternative ways to fund and reward innovation beyond the existing patent system; and, the topic of today’s conversation: creating more aligned incentives along the entire supply chain. We are currently supporting projects across all of those areas. Today we’ll hear more on the last topic, including how the rebate system fits into the larger supply chain debate, some of the distortions that it may have created in the market, and hopefully some ideas about what can be done to improve it. And with that, I’ll turn it back over to Sarah. Thank you. SARAH DASH: Thanks, Erica. Thanks. Well, as Erica said, today we are going to focus on just one aspect of the overall drug pricing supply chain, and that’s prescription drug rebates. We are going to focus primarily on Medicare Part D and the commercial system. There is a completely different system in Medicaid, so just to kind of put that out front in case anyone was looking for that information. So I’m going to go ahead and introduce our panelists. Each of them has a wealth of expertise on this topic and is going to explain different vantage points about the rebate system. Joining us today, and we’re going to go down the line here, joining us today, all the way to my right, is Lance Grady. Lance is the Vice President and Team Lead at Avalere Health. At Avalere, he devises commercialization strategies focused on value, access, and reimbursement with a focus on oncology, and over 20 years of experience in policy access, reimbursement strategy, and execution, and point of care. He’s passionate about providing practical and meaningful solutions that are viable to all healthcare stakeholders. Thanks for joining us, Lance. We will next hear from Ross Margulies. Ross is an associate at Foley Hoag. He helps innovative healthcare and life sciences companies to advance their strategic business goals in a heavily regulated industry undergoing rapid change and disruption. His clients include community health centers, healthcare startups by pharmaceutical manufacturers, long-term care providers, pharmaceutical benefit managers, pharmacies, large healthcare systems, insurers, and technology companies. Next, we are very pleased to hear from Lida Etemad. Lida is Vice President of Pharmacy Management Strategies for UnitedHealthcare’s employer and individual and community and state divisions. In this role, she’s accountable for identification and development of programs and products that enhance the value of their pharmacy benefits. Next, we’ll hear from Jack Hoadley. Jack is the Research Professor Emeritus at Georgetown University’s Health Policy Institute. He retired in 2017 but continues to conduct research on a part-time basis. Dr. Hoagley’s completed six years as a commissioner on the Medicare Payment Advisory Commission, MedPAC, he holds a PhD in political science and, prior to arriving at Georgetown in 2002, helped staff positions at the Department of Health and Human Services, MedPAC, the Physician Payment Review Commission, and the National Health Policy Forum. And, finally, we’ll hear from Gerard Anderson who is Professor of Health Policy and Management, and director of the Johns Hopkins Center for Hospital Finance and Management. Prior to coming to Johns Hopkins in 1983, he worked in the Office of the Secretary of the Department of Health and Human Services for a number of years. So, with that, I will turn it over to Lance to kick things off. LANCE GRADY: Great. Good afternoon. It’s a pleasure to be here. I will take the lead-off position here in the batting lineup and talk a little bit about how prescription drugs leave the door from the manufacturer and the interface on the supply side from a manufacturer’s perspective, both with the wholesaler through the pharmacy and then, also, from the perspective of how rebates may impact pricing and how rebates may impact access primarily in Medicare Part D. So we’ll spend a little bit of time on drug benefit categories very briefly. We’ll do a little bit of alphabet soup on drug payment methodologies. Some of this may be back-of-the-hand knowledge for some of you, others it might be a foreign language. We’ll talk about key stakeholders in the drug distribution and reimbursement system, and we’ll give a really detailed flow, but it is an illustrative flow, with an artificial price of a prescription of a WAC, or a Wholesale Acquisition Cost, WAC, of $1,000 and we’ll talk a little bit about how drug and payment flow moves through the pharmacy benefit to illustrate the impact of discounting and/or rebates when linked to list price. Alright, so let’s get into it. I think one of the first things to understand is that all drugs are not covered under the pharmacy benefit and all drugs that are covered under the pharmacy benefit aren’t exclusively covered under the pharmacy benefit. But a rather simple flow of looking at this, and one of the ways in which HHS looks at this, is to determine route of administration or if a product is self-administered. And, as you know, all orals or most orals are self-administered, and since the inception of the Part D plan and Part D drug benefit, most orals, not all, are covered now under the Part D benefit. There are also products that are physician-administered, and not all physician-administered products are covered incident to physician or under Part B in the Part B drug benefit. It could depend upon on who purchased the drug and so you may also hear about injectables and also infusion drugs that, while they are administered by a healthcare professional, they may be procured through a pharmacy benefit, or Part D benefit. There is also, on the commercial side, sort of an in-between step down this far right-hand aspect of the medical benefit. And, in fact, some instances, while not necessarily in fee-for-service Medicare at present, a provider or a patient or a member or a beneficiary may engage in care in an infusion in which the pharmacy actually acquires the drug but yet the physician simply bills or administers that. Now, we’re not going to talk about that for today’s purposes, but if you’ve heard of CAP, or if you’ve heard of the Drug Value Program, or if you’ve heard of the IPI proposal, this, in essence, introduces a middle step, if you will, down this right side in terms of who purchases the drug, when that drug might be traditionally physician-administered. But for our purposes, we’re going to be talking today about the pharmacy benefit. Now there are various pricing methodologies that are used in drug reimbursement, and if you look at some of the terminology here, WAC, or Wholesale Acquisition Cost, is one of the drug-pricing types that are defined in regulations. ASP is also defined, AMP is also defined as well. WAC is very common and is commonly defined in which it’s – this is the price that it leaves the manufacturer to the wholesaler and so the purchase is typically at WAC, or it could be at a discount off of WAC, and what is getting a lot of press is the fact that some of these discounts on the supply side could be percentage-based, or could be attributable to a product’s wholesale acquisition cost or launch price or unit price. And so, as price goes up, if there is a percentage discount off of that increased price, then that could benefit the supply side as well. WAC is also a determining factor when we look at rebates, and many of the negotiations for rebates for formulary access are based upon a product’s WAC, or a prospective WAC, or a potential average annual WAC for a patient or a member throughout that benefit year. And so, Wholesale Acquisition Cost, a price set by manufacturers, is also a determinant or a variable in many of the price concessions, both on the supply side and on the access negotiation side. In the middle you see ASP, which is the Average Sales Price, and at present, ASP is rarely used in adjudicating a pharmacy benefit. Most pharmacy benefit payments are either WAC-based or AWP-based. But ASP, to some degree, does account for rebates and discounts. Not rebates and discounts that are supplied to government entities, disproportionate-share hospitals, Medicaid, things of that nature, but rebates and discounts that are supplied on the commercial side. And so, if you provide a rebate or a concession in average sales price, that has a dampening effect on a product’s Average Sales Price. What has an increase or heightened effect on a product’s Average Sales Price is a price increase, or volume, and so you see fluctuations in ASP and, in fact, CMS publishes quarterly the Average Sales Price for physician-administered drugs on a quarterly basis. It is this average sales price plus 6 percent that determines the physician revenue when they are providing physician-administered services. Average Wholesale Price, it’s kind of a fossil that’s sort of leftover in today’s world. It’s an arbitrary sort of number that was meant to sort of be intended to be what some people call a WAMP, or a Widely Accepted Market Price. It has very little application in terms of the manufacturer establishing it, but you could arrive at an AWP relative to a list price, or WAC. AWP still exists in some traditional reimbursement models, in particular AWP minus percentage points, and AWP can increase as well, in particular, when a product takes on a price increase. That was a lot to digest there, and it is very complicated. And when you think about how this is depicted in the flow of a product and how a patient or a pharmacy or a health plan or a PBM or a wholesaler interfaces with one another today in the U.S. market, it can be quite complicated, and so this next slide is attempting to somewhat simplify that. And this is a challenging slide, and we went back and forth on this and should we do animation or should we do a bill, but if you start at sort of 12 o’clock, at Step 1, and we move clockwise, the product will leave the drug manufacturer, and we’re assuming in this example, a WAC of $1,000. And for simplification purposes, let’s just say that this is a one-dose oral product. And so the wholesaler is going to purchase at WAC. There could be a net minus off of that WAC. Now, that net minus might be at point of purchase, but it’s most likely at point of chargeback because the wholesaler is trying to incentivize pharmacies to participate in their network so that they can sell to those pharmacies as well. The pharmacy is somewhat the end-purchaser here, but maybe not. The pharmacy is also going to be negotiating in Step 2 through a PBM to a health plan on a reimbursement rate for fulfilling this prescription, and this pharmacy reimbursement is AWP-based. At the point of care between the pharmacy and the patient, you have the patient’s out-of-pocket benefit. Now we know 20 percent co-insurance is just an example here, but in this instance, a patient’s co-insurance is not based upon any negotiated payment rate by any upstream stakeholder at present, and particularly in the Part D benefit. There are some examples in which a rebate or a discount pass-through does exist to patients in commercial books of business, but those are small. In the Part D benefit, that patient’s co-insurance is going to be based upon that patient’s standard benefit design, and in this instance 20 percent, times that WAC. And so that patient, at point of care, is responsible for $200. And, of course, this is the typical non-LIS patient. If you are a Low-Income Subsidy Part D patient, or if you have a different benefit design you will, of course, have ranges of deductibles, ranges of co-pay or co-insurance against this sort of arbitrary example of a $1,000 WAC. Behind the scenes, and possibly chronologically in terms of how this flows as it relates to the process of data, but certainly not chronologically in the flow of a calendar and, in fact, prior to this formulary year, or bid year, negotiations between the drug manufacturer and the PBM and/or the drug manufacturer and the health plan have already occurred. And in this hypothetical example, there is a 30 percent rebate negotiation in which that manufacturer will receive formulary access, either at parity or preferred, relative to other competitive products in its market basket. And so, in this instance, that rebate is negotiated on the front end and then is applied retrospectively on the back end. Now most rebates today are tied to formulary access, and I know Lida will go into this in detail from the plans’ perspective, there are other rebates that are in play in the market, including potentially protected price, including potentially rebate pass-through. Some of those, and especially rebate pass-through to the beneficiary, is what is sort of under the microscope today as we contemplate potential rebate reform in the Medicare Part D drug benefit. I’ve got four esteemed panelists with me who can speak to some of the legal, more practical, and other aspects of how this impacts the marketplace. My job was to get the prescription out the door and to move it through this sort of convoluted clock in a very short 10-minute time, and in one slide. So happy to take other questions on how pricing methodologies and how the flow of product on the supply side and the access side are interlinked in today’s market when we get to the Q&A. ROSS MARGULIES: Thank you, Lance. First of all, that was very helpful. I think that’s necessary to help to try to understand the rest of this conversation which is both what are some of the proposals the administration is considering in terms of drug pricing reform generally and rebate reform specifically, but also in understanding how the drug supply chain works from top to bottom. I’ll also say I am tickled pink that it is standing room only at a session on rebates, which I think, a few years ago would not have happened or maybe even a year ago. And that’s really why we’re here today, which is this administration has focused heavily on drug pricing reform and, in particular, in May of this year, as many of you know, the administration released a blueprint called: America’s Patients First Blueprint for Drug Pricing Reform, that, among other questions – it really was in the form of a request for information – asked whether or not rebates, as Lance explained them, lead to either higher list prices in the marketplace or, and/or, higher prices paid by consumers. Now, the other panelists here I think will get a little bit more into what the data shows with regard to rebates. My goal here is to talk about what we think the administration is proposing, but in order to do that, we need to get a little nerdy with anti-trust law, the Anti-Kickback Statute, and a few other things. So bear with me here. I will do my best in this short time to make this make sense. So, next slide, please. Rebates and discounts and chargebacks, and what is the difference? So, for purposes of my individual presentation, when I’m talking about rebates, I am talking about discounts that happen after the fact. So instead of a Black Friday sale on a drug where the drug is 20 percent off, when I say rebate what I mean is, you buy the drug at $100, which is its list price, and then you mail in a rebate and you get $20 back in your hand. So, one happens up front and one happens at the back end. So rebate agreements, discount agreements have been happening between manufacturers and plans and pharmacies for decades, but there was a lawsuit that I want to briefly touch on because it is important for understanding some of the implications of the current administration’s policy proposal, what happened with that lawsuit. So that lawsuit happened in the mid-1990s, and what happened was manufacturers were offering deeper discounts, in many cases, to payers and managed care organizations than they were to pharmacies. So they would offer payers $80 for a $100 drug and only $90 to the pharmacies. And the pharmacies looked to anti-trust law, and in particular, looked to two different laws: the Sherman Act and the one I cite here, the Robinson-Patman Act, which is an often-criticized anti-trust law, but one that is still on the books that makes it a violation for a seller of a product to offer that product on different pricing terms to equally situated distributors. So the pharmacies in that case argued, hey, manufacturer, you are offering a deeper discount, different pricing terms, to those health plans. That is a violation of the Robinson-Patman Act. Next slide, please. The case was ultimately settled. It was not decided in court, and the settlement agreement has actually expired, but the law behind that, the Robinson-Patman Act and the Sherman Act still stand, and the settlement agreement, in addition to a monetary penalty, led to an increase and a change in behavior. So the manufacturer said, no, pharmacies, we’re not going to just offer you that same price that the payers get, but we will offer all of you the same price if you can show that you can move a certain amount of market share. So if you are able – so if you can buy, let’s say we have a drug that’s $1,000, if you can sell 1,000 units of this drug, then we’ll give you that $80 price. Now the only way to reflect that is doing the discount, or what we’ll call here now a rebate, after the fact, because I won’t know if you can sell those 1,000 units of drug until after the fact. And so, although rebates, i.e., backend discounts existed prior to this 1996 settlement, it really became the predominant method and what has underlined the idea of a backend rebate over the last 20 years. So now, in 2018, federal policymakers are suggesting that we make changes to this post-settlement rebate structure. And so I want to talk a little bit about both: 1) what exactly is the administration proposing; and, 2) what might this litigation from the 1990s tell us about potential hiccups in that arrangement. Next slide, please. So why are we talking about the Anti-Kickback Statute, which is a federal healthcare fraud and abuse law? The administration has its arms tied a little bit in how it can address rebates and drug pricing generally, and that is because the Part D statute, because it was designed by Congress to be a market-based program, has a very important clause in it called the Non-Interference Clause. And that non-interference clause says – this is very broadly – government, stay out of the negotiations between manufacturers, payers, PBMs, pharmacies. And so, the administration cannot actually go in and say stop doing rebates in Part D. So, instead, they have come up with an interesting idea which is well, a rebate – and this is why we’re talking about the Anti-Kickback Statute – a rebate, itself, is actually a violation of the Anti-Kickback Statute in many cases and right now we protect it with certain safe harbors, but if we remove those safe harbors, perhaps we could get rid of rebates entirely. Now, the Anti-Kickback Statute, and this is hard to do a primer on this in 8, 10 minutes, but the Anti-Kickback Statute is a criminal law. It is a federal law that makes it a crime to a payer to receive anything of value as an incentive or an inducement to use a healthcare service that is reimbursable by a federal healthcare program. What does that mean? It means that when a rebate is paid to encourage a Medicare Advantage or a Part D plan to favor a particular product that is, on its face, a violation or at least implicates the Anti-Kickback Statute. So, put more simply, when a manufacturer says: we will rebate or discount this drug by $20, that itself does implicate the Anti-Kickback Statute because they are offering something of value to induce the referral of that item. Now, a couple very important points about the Anti-Kickback Statute. When Congress created it, Congress also created statutory exceptions. One of note I would point you to is a statutory exception for discounts or other reductions in prices. Now that, again, is in statute, not in regulation, and so one immediate question for the administration is they consider potentially subjecting rebates to Anti-Kickback Statute scrutiny is: do we need to change federal law, because that statutory exception still exists. So, we’ll get back to that in a second. Next slide, please. So, let’s break this down. That was a lot. So let’s say there are two equally effective products on the market treating a particular medical condition, each is a covered Part D drug, so they can be provided to a beneficiary; let’s say they’re heart disease drugs. Manufacturer A, in this case, provides a rebate of, let’s say, $50 on the drug with the WAC price of $50, so it is a $50 net-price drug, and Manufacturer B only offers a $20 rebate. So, Part D plans would generally favor the drug that’s net price is $50. The Anti-Kickback Statute is implicated here, because the manufacturer offering that drug for $50 is paying something of value; i.e., that $50 rebate, as an inducement to use its product. But, in this case, arguably the statutory exception for discounts or other reductions in price may protect this arrangement. Next slide. There are also regulatory safe harbors. The Department of Health and Human Services and the Department of the Office of the Inspector General inside the Department of Health and Human Services, over the last 20 years has adopted about 28 various safe harbors. One question is, why do we have so many safe harbors and statutory exceptions? Because the language of the Anti-Kickback Statute, in and of itself, is quite broad. Without these exceptions, or safe harbors, much of what happens in healthcare, particularly today, given how much value-based care and integrated care we provide, would not be allowed. And so, over the years, the agency, HHS, continues to adopt safe harbors. There are regulatory safe harbors that also, arguably, protect rebates. There is a discount safe harbor, there is a safe harbor for GPOs, so manufacturers’ plans may rely on both the statutory exception to the Anti-Kickback Statute as well as these safe harbors. My point here at the bottom is one question that policymakers must consider at this point is, given the existing statutory exception for discounts or other reductions in price, would Congress need to do something in order to subject rebates to Anti-Kickback scrutiny? Next slide, please. Okay. I talked about this already. This is why many of us are here today. There is a rule; we do not know what is in the rule, but it has a very revealing title, and that rule has been at OMB since July. The title I should have included here is something along the lines of – oh, I did include it: Removal of Safe Harbor Protection for Rebates to Plans or PBMs Involving Prescription Pharmaceuticals and Creation of a New Safe Harbor Protection. Again, the rule is under review at OMB. My understanding is the rule is still alive and we expect it to be released at some point in the near future. Just one other point I’ll make on the slide which is, you may have heard about a rule that came out on Monday. That rule is also on Medicare Advantage and Part D. Many thought it might address rebates; it did not, it addressed pharmacy price concessions as well as a couple of other things including protected classes. Pharmacy price concessions, although also an interesting piece of the drug supply chain, are far beyond the scope of what we’re doing today. Next slide. So, what is in this proposed rule, and I realize I’m out of time, so I’m being very quick. We don’t know what’s in the rule, but here are four possibilities of what the administration might be considering: one, could they eliminate the regulatory safe harbor, notwithstanding arguments that the statutory exception exists, and subject all rebates to Anti-Kickback scrutiny thereby essentially forcing manufacturers, plans, to move back to a pre-rebate system where all drugs are discounted on the front end. Alternatively there are various scenarios that look like that, so instead of completely getting rid of rebates and subjecting them all to Anti-Kickback scrutiny we could, for example, provide protection only for rebate arrangements where 100 percent or some high percentage of rebates are passed through to the consumer at the point of sale. Here are a couple of other possibilities; I won’t go through them all. Let me conclude with some key questions, which I will also not go through but I want to point to two because I want to connect a couple points I made throughout the presentation. The first is, as the administration and OIG consider ways in which they may subject rebates to scrutiny, so in some way restrict the use of rebates, it is important for them to consider the historical context in which rebates came to be and, in particular, whether or not, in a system where up-front discounts are the only way in which a drug can be discounted, will those discounts be as deep as the rebates are currently today because of the Robinson-Patman Act? So, if, in fact, a manufacturer, when offering up-front discounts, has to offer the same price to all equally situated purchasers, might that mean the pharmacies come back to the table, for example, and say: give us the same price. And instead of offering them that lower price, might it be possible that they just raise the price overall, or offer less discount than they do through the rebating system? The other question I will make, and is one I brought up a couple times, which is – this is the first one – how could the OIG completely eliminate the discount safe harbor, since that safe harbor is protected in the statute? So, lots of questions to consider. You know, my hope to hear here is sort of what the data shows with regard to rebates and how they work more. So, Lida. LIDA ETEMAD: Good afternoon. As Sarah mentioned, I work for UnitedHealthcare, so I’m going to be representing the health plan view, but I also work very closely with our PBM, so I’ll be talking a little bit about their perspective as well. As everyone has mentioned, we’re only given 10 minutes, so I’m going to talk fast and I’m going to jump right in. So first, today is your day for graphics and charts, I guess. I’d like to level set on how commercial payers view rebates. Rebates, as we’ve been talking about, are essentially discounts that are negotiated with pharmaceutical manufacturers and, at a very high level, payers are able to obtain these discounts due to two factors. The first is size, and the second is level of control. The more you have of either of these things, the deeper the discount that you’re able to obtain. So, as it relates to size, I think that’s something that’s fairly familiar to everybody, the more prescriptions you pay for, as Ross mentioned, the greater the volume you have. The level of control is something I’m guessing most of us don’t go around thinking about every day so that’s something I want to spend just a minute digging into a little bit deeper. Level of control essentially means how much influence a payer has on either drug selection or drug use. When there are limited options to treat a specific disease state, payers have little ability to influence whether or not that drug gets used. An example of this would be Tibsovo, which is a new medication that has recently been approved for a certain type of cancer called AML. This drug is used in patients who either aren’t responding to current therapy or their disease or their cancers continue to progress, despite being on current therapy. For these patients today, there really are no other options for them other than this medication. The medication is priced at $26,000 a month, or $300,000 a year. Because there is no competition and, as insurers were required to pay for this medication, that pharmaceutical company was able to set the price at the level that they choose and we, essentially, have very little to no ability to leverage an additional discount. Now, on the flipside, let’s take the class of medication where all the products in the class are very similar to one another clinically. As payers, we have the ability to incent the use of one product over another through programs like step therapy, or through decreasing co-payments for members. An example of this would be the growth hormone class of medication. These medications are very similar to one another and often can be substituted for one another. Because of this, we’re able to influence the product that is being chosen when treating somebody with growth hormones, and due to that, we’re able to leverage much deeper discounts on these products. I want to spend just a quick minute talking about how payers view rebates. When a new product enters the market, what matters most to payers is the net cost of that product, not the amount of rebate that’s associated with it. So if a new product comes to market and, say, it has a $500 list price with $150 rebate attached to it, or that product was to come to market with a $300 list price, from a cost perspective, those two situations would be viewed the same from a payer. Next slide, please. So how do rebates work from a PBM perspective? I know we had a very detailed graphic, so I’m going to try to break this down just a little bit. Most of us are used to getting a prescription, most of us are used to taking a medication to our local CVS or Walgreens, and we know how that medication gets to us, but I don’t know if people are very familiar with how that claim gets paid behind the scenes. When you take in your prescription, the pharmacy will take that information from your