Breaking down the proposed safe harbor changes

Policymakers in Washington are proposing a change in the way that money flows between pharmaceutical manufacturers, pharmacy benefit managers, health plans, and even consumers. Although these new rules only apply to government programs — Medicare and Medicaid — they could apply to commercial health plans in the near future.

You may have heard this change referred to in industry jargon as “eliminating the safe harbor.”  In plain English, the rule would only allow drug rebates — which today are paid to either PBMs, health plans, or both — if they are paid to the consumer.

Here are the basics:

What is the safe harbor for rebates?
Essentially, the safe harbor rules allow PBMs and manufacturers to negotiate volume discounts.  These discounts are often shared — partially or entirely — with the health plan with the goal of reducing premiums and costs for all members. As the cost of prescription medications has skyrocketed, this approach to rebates has come under intense scrutiny, in part because it’s a very opaque system. Few people get to see how much is paid in rebates, how much is shared, and whether it actually does lower prices for consumers.

Why do people want to make a change?
Consumers are paying more and more for their medications, and policymakers are understandably looking for every possible avenue to lower their costs. As they should. Regulators and elected officials are also looking to make the current system much more transparent, so the industry players can be held accountable for rising costs. By ensuring that rebates are paid to consumers, they are hoping to achieve both goals:  lower costs and increase visibility into where the money is going.

What is the new proposed rule?
The proposed rule would eliminate rebates that are negotiated between manufacturers and PBMs serving Medicare Part D and Medicaid plans. However, rebates will not go away entirely. As part of these changes, the government would allow PBMs and Health Plans to negotiate discounts with pharmaceutical manufacturers on the price of drugs. However, these discounts would be a reduction in the price paid to the pharmacy, rather than a rebate paid to the health plan. And the discounts would need to be shared with those members purchasing these drugs.

So, this is a good thing?
At Abarca, we agree that prescriptions cost too much, and the system needs greater transparency and accountability. We believe that health plans should understand exactly what they are paying for and that consumers should have confidence that they are being treated fairly.

We were founded more than a decade ago to be a different kind of PBM. We reject many of the all-too-common business practices of the PBM industry, take a straightforward approach to business, and are constantly in pursuit of a better way. As such, we support the Administration’s goals and welcome this effort to significantly disrupt the status quo.

The rule is set to go into effect in 2020, and there are still many unanswered questions about how the proposed system would be implemented and whether it would actually reduce drug costs. Abarca believes that a less aggressive timeline would allow stakeholder feedback to be incorporated into the final proposal, and ensure that it is written in a way that achieves the objectives at hand.

We will be watching to make sure drug costs go down for consumers, premiums do not rise and make insurance coverage unaffordable, and the proposal works as planned.

This blog was written by Dan Reedy, Senior Manager, Pricing and Underwriting Strategies at Abarca.

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