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Doing away with drug rebates alone will not bring down drug costs

Written by Diane Archer

Pharmaceutical companies charge too much for their drugs. And, they probably charge more because they pay pharmacy benefit managers (PBMs) rebates. (PBMs decide which drugs will go on an insurer’s formulary at what copay level.) But, simply doing away with drug rebates likely will not bring down drug costs.

We need to eliminate both the rebates and the PBM middlemen, which are in the business of choosing drugs and copays for insurance company formularies based in no small part on how much pharmaceutical companies pay them to promote particular drugs. These perverse incentives undermine the public health.

Neither PBMs nor health insurers, which also benefit from rebates, should be steering people to drugs based on how much these companies profit from them. These misaligned incentives result in some drug formularies including brand-name drugs but not the generic substitutes.

Pharma says it does not like the rebate system and wants to “delink” it from the drug’s list price, Katie Thomas reports for The New York Times. My read: Pharma feels that pharmacy benefit managers, insurers and pharmacies are getting too much money from the sale of prescription drugs, and it wants a greater share of that money.

It is hard to imagine that eliminating rebates would lead drug companies to lower their prices. When was the last time a drug company lowered its prices? Moreover, drug companies will always find ways to pay distributors to promote their drugs over others, to pay doctors to prescribe their drugs through speaking fees and other gifts, and to pay individuals to take their drugs through copay coupons and the like. That’s how they increase sales and profits.

To be sure,  Americans would benefit most if the federal government regulated all drug prices and had an independent agency determining which drugs add value and which are unsafe and ineffective or overpriced relative to other drugs on the market.  That’s what the UK, France and Italy do.

HHS Secretary Azar recognizes that everyone in the drug supply chain makes money off of the drug’s list price. He suggests that it might be time to eliminate rebates. But, even if rebates go, don’t assume that ordinary Americans will benefit.  It will mean more money for Pharma and less money for PBMs, insurers and pharmacies. And, in all likelihood, to make up for that lost revenue, they will find ways to drive up health care costs for individuals even further.

If you want Congress to rein in drug prices, please sign this petition.

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