AHIP Report: Rebates Are Not to Blame for Increasing Drug Prices

According to the report, Medicare Part D drugs that demonstrated the lowest annual cost increases offered higher average rebates than drugs with the highest annual cost increases.

While the Trump administration is considering a proposal from HHS to overhaul safe harbor protections for rebates given by drug makers to health plans and pharmacy benefit managers as a way to bring down high drug prices, a new report prepared for America’s Health Insurance Plans (AHIP) suggests that much-maligned rebates are not to blame for increases in drug prices.

AHIP engaged consulting company Milliman to examine Medicare Part D drug prices and manufacturer rebates to help the organization prepare its comments in response to the administration’s blueprint to lower the price of drugs for American patients. Milliman used publicly available Part D drug spending and utilization data from 2013 to 2016, combined with 2016 data from contributing health plans on rebates.

According to the report, rebates are typically offered only for brand-name drugs; 81% of all of the Part D drugs analyzed offered no rebates. Furthermore, 64% of brand-name drugs did not offer rebates, and non-specialty drugs—rather than pricier specialty products—had the highest rebates when measured as a percentage of gross drug costs.

Of the 706 branded products analyzed, representing 95% of brand drug spending, only 36% had more than a nominal manufacturer rebate (rebates representing more than 1% of the drug’s gross cost), and only 27% offered significant rebates (representing 12% or more of the drug’s gross cost).

Products that face direct brand competition had a higher proportion of drugs that offered rebates (as well as a higher average rebate as a percentage of gross costs), while those in protected classes had the lowest proportion of rebates (and the lowest average rebate as a percentage of gross costs). Those products that faced direct competition offered rebates that totaled approximately 39% of gross costs, while products that were in protected classes offered rebates that totaled just 14% of the same.

Notably, while drugs with rebates offered in 2016 had higher price trends than did drugs without rebates, the average annual gross cost per Medicare beneficiary has increased more quickly for drugs that offered no rebates. Products that demonstrated the lowest annual cost increases offered higher average rebates than drugs with the highest annual cost increases.

The report’s findings suggest that addressing rebates alone will not reduce drug prices; while Milliman and AHIP’s report did not offer direct proposals as to how to address the problem of high drug prices outside of targeting rebates, competition, the findings suggest, may be the key.