Prescription Drug Rebates, Explained

Summary

The video script discusses prescription drug costs and the role of rebates. Drug companies set list prices and offer rebates to pharmacy benefit managers (PBMs) for preferred placement on insurance formularies. These rebates can lower insurance costs but do not directly reduce patients' out-of-pocket expenses. Lawmakers are considering various strategies to reduce drug costs, including banning rebates for Medicare Part D, promoting generic drugs, and allowing international drug price benchmarks.

Takeaways

• 💊 Prescription drug costs are a hot topic, with 'rebates' being a central term in discussions.
• 💲 The 'list price' of a drug is set by the drug company and is often the basis for what consumers pay.
• 🔄 Rebates in the prescription drug industry are not direct discounts to consumers but are given to Pharmacy Benefit Managers (PBMs).
• 🛡 PBMs manage pharmacy benefits for health insurance companies, including negotiating drug prices and developing formularies.
• 🏥 Drug companies offer rebates to PBMs to secure preferred placement for their brand-name drugs on the formulary.
• 💼 PBMs may pass on some or all of the rebates to insurance companies, which can help reduce insurance costs and premiums.
• 💸 Rebates do not directly reduce the out-of-pocket costs for patients, as these are based on the list price, not the discounted price paid by PBMs.
• 🏛 Lawmakers are considering changes to the rebate system to lower prescription drug costs for consumers.
• 🚫 The Trump Administration proposed banning rebates between drug companies and PBMs for Medicare Part D but later retracted the proposal due to concerns of increased costs.
• 🛑 Alternative strategies being discussed include increasing generic drug availability and using international drug prices as a benchmark for U.S. prices.
• 🌐 Other proposals include allowing the federal government to negotiate drug prices under Part D and enabling Americans to purchase drugs from other countries at lower costs.

Q & A

What is the term 'rebates' often discussed in the context of prescription drug costs?

Rebates in the context of prescription drugs refer to discounts or reductions in price offered by drug companies to pharmacy benefit managers (PBMs). These rebates are typically given to ensure that brand-name drugs get preferred placement on the formulary, which is a list of drugs covered by insurance companies.

What is the list price of a drug and how does it affect prescription costs?

The list price of a drug is the initial price set by the drug company. It is often used to determine how much a patient pays when filling a prescription. If a patient has insurance, they might pay a percentage of the list price or the full amount if they haven't met their deductible. Without insurance, patients typically pay the full list price.

Who are Pharmacy Benefit Managers (PBMs) and what role do they play in managing prescription drug costs?

Pharmacy Benefit Managers (PBMs) are entities used by health insurance companies to manage pharmacy benefits. They are responsible for developing the formulary, negotiating drug prices with pharmaceutical companies, and administering prescription drug benefits for insurance plans.

Why do drug companies offer rebates to PBMs?

Drug companies offer rebates to PBMs to secure preferred placement for their brand-name drugs on the formulary. This encourages patients to use their medications over competing products, thereby increasing sales and market share.

How do PBMs utilize the rebates they receive from drug companies?

PBMs may share some or all of the rebates they receive from drug companies with insurance companies. This helps to lower overall insurance costs, allowing insurance companies to charge lower premiums to their enrollees.

Do rebates directly lower the out-of-pocket costs for patients?

No, rebates do not directly lower the out-of-pocket costs for patients. What patients pay is based on the list price, even if the drug company has given a rebate to the PBM for that drug.

What was the Trump Administration's proposal regarding rebates in prescription drug coverage?

The Trump Administration proposed banning rebates between drug companies and PBMs for people with prescription drug coverage through Medicare Part D. Instead, drug companies could offer rebates directly to people enrolled in Part D when they filled their prescriptions.

Why was the Trump Administration's proposal on rebates retracted?

The proposal was retracted amid concerns that it would lead to higher costs for insurance companies, higher premiums for enrollees, and increased Medicare spending by the federal government.

What other methods are being considered to lower prescription drug costs?

Other methods being considered include bringing more generic drugs to market, using lower drug prices in other countries as a benchmark for U.S. prices, allowing the federal government to negotiate drug prices under Part D, and permitting Americans to buy lower-cost prescription drugs from other countries.

What is the current status of proposals to change the rebate system in prescription drug costs?

The fate of these and other proposals to change the rebate system is still uncertain, as lawmakers continue to explore various ways to help people save money on their prescriptions.

How do insurance companies benefit from the rebate system in the current prescription drug pricing structure?

Insurance companies benefit from the rebate system by potentially receiving a share of the rebates from PBMs, which can help lower the overall cost of insurance, thereby allowing them to offer lower premiums to their enrollees.

Outlines

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💊 Prescription Drug Costs and Rebates

This paragraph discusses the complexities of prescription drug costs, focusing on the role of rebates. It explains that drug companies set a list price for their drugs, which is often the basis for what consumers pay, either as a percentage or the full amount if they haven't met their deductible or don't have insurance. The paragraph also delves into the concept of rebates offered by drug companies to pharmacy benefit managers (PBMs), which manage pharmacy benefits for health insurance companies. These rebates are typically offered for brand-name drugs to secure preferred placement on the formulary, a list of covered drugs. The actual price PBMs pay is thus lower due to these rebates, which may be shared with insurance companies to lower overall costs and premiums. However, these rebates do not directly reduce the out-of-pocket costs for patients, as these are still based on the list price.

Keywords

💡Prescription Drug Costs

Prescription drug costs refer to the expenses incurred by consumers when they purchase medications prescribed by a healthcare professional. In the video, this term is central as it discusses the complexities and challenges associated with the high costs of prescription drugs, which is a significant concern for many patients and policymakers.

💡Rebates

Rebates in this context are financial incentives offered by drug companies to pharmacy benefit managers (PBMs) in exchange for preferred placement of their drugs on insurance formularies. The video explains that while rebates can lower the cost for insurance companies, they do not directly reduce the out-of-pocket expenses for patients, which is a key point in the discussion about prescription drug pricing.

💡List Price

The list price is the initial price set by a drug company for their medication, often used as a reference for determining insurance copayments or out-of-pocket costs. The script mentions that this price can be reduced through rebates, but the impact on the patient's cost is indirect, highlighting the disconnect between the list price and what patients actually pay.

💡Pharmacy Benefit Managers (PBMs)

PBMs are entities that manage prescription drug programs for health insurance companies. They negotiate drug prices and develop formularies, which are lists of covered drugs. The video emphasizes the role of PBMs in receiving rebates from drug companies, which can influence drug pricing and availability for consumers.

💡Formulary

A formulary is a list of medications that an insurance company agrees to cover under its health plan. The video script explains that PBMs develop these formularies and negotiate with drug companies to include certain drugs, often influenced by the rebates offered, which can affect the availability and cost of drugs for patients.

💡Brand-Name Drugs

Brand-name drugs are medications that are sold under a proprietary name and are often more expensive than their generic counterparts. The script discusses how drug companies offer rebates for these drugs to ensure their preferred placement on formularies, which can influence patient choices and drug costs.

💡Deductible

A deductible is the amount of money a policyholder must pay out-of-pocket before insurance benefits begin to apply. The video mentions that if a patient hasn't met their deductible, they might pay the full list price for a prescription drug, emphasizing the financial burden on patients before insurance coverage kicks in.

💡Insurance Premiums

Insurance premiums are the regular payments made by policyholders to keep their insurance coverage active. The script suggests that rebates shared by PBMs with insurance companies can help lower overall insurance costs, potentially leading to lower premiums for enrollees.

💡Out-of-Pocket Costs

Out-of-pocket costs are expenses that patients must pay directly for healthcare services, not covered by insurance. The video highlights that rebates do not directly reduce these costs for patients, as they are based on the list price, even when rebates are offered to PBMs.

💡Medicare Part D

Medicare Part D is a program that provides prescription drug coverage for people with Medicare. The script discusses a proposal by the Trump Administration to ban rebates between drug companies and PBMs for Part D, suggesting that this could impact drug pricing and insurance costs for Medicare beneficiaries.

💡Generic Drugs

Generic drugs are copies of brand-name drugs that have the same active ingredients but are typically sold at a lower price. The video mentions the potential of bringing more generic drugs to market as a way to lower drug costs, suggesting an alternative to high-priced brand-name drugs.

Highlights

Prescription drug costs are a topic of much discussion, with rebates being a key term.

Rebates in the context of prescription drugs differ from those for other consumer goods.

Drug companies set a list price for their drugs, which may determine the cost for consumers without insurance.

Insured consumers may pay a percentage of the list price or the full amount if the deductible hasn't been met.

Drug companies may offer rebates or discounts to pharmacy benefit managers (PBMs) behind the scenes.

Health insurance companies use PBMs to manage pharmacy benefits, including negotiating drug prices.

Rebates are typically offered for brand-name drugs to secure preferred placement on the formulary.

Preferred status on the formulary encourages the use of a drug company's medications over competitors.

When a prescription is filled, the drug company pays a rebate to the PBM, reducing the actual price paid.

PBMs may share rebates with insurance companies to lower overall insurance costs and premiums.

Rebates do not directly lower the out-of-pocket costs for patients, as these are based on the list price.

Lawmakers are considering changes to the rebate system to reduce prescription drug costs.

The Trump Administration proposed banning rebates between drug companies and PBMs for Medicare Part D.

The proposal was retracted due to concerns of increased costs for insurance companies and Medicare spending.

Alternatives being discussed include bringing more generic drugs to market and using international drug prices as benchmarks.

Federal government negotiation of drug prices under Part D and allowing Americans to purchase drugs from other countries are also being considered.

The future of these proposals and others to lower drug costs remains uncertain.

Transcripts

(mild music)

- [Narrator] Lately there's been a lot of talk

about prescription drug costs.

One word that comes up often is rebates.

You may be familiar with how rebates work

for other consumer goods.

When you buy a certain product,

the manufacturer gives you some money back,

which is called a rebate.

But when it comes to prescription drugs,

rebates work a little differently.

Let's start with the drug company,

which sets a price for their drug,

sometimes called the list price.

It's often used to determine how much someone pays

when they fill a prescription.

If you have insurance, you might pay a percentage

of the list price, or if you haven't met your deductible,

you might pay the whole amount.

If you don't have insurance,

you might also pay the full list price.

But behind the scenes,

the drug company may also offer a rebate,

or a discount on the list price

to a pharmacy benefit manager, or PBM.

Health insurance companies use PBMs

to manage their pharmacy benefits.

This includes developing the formulary,

which is a list of drugs the insurance company will cover,

and negotiating prices with drug companies

for the drugs covered on the formulary.

So why do drug companies offer rebates to PBMs?

Typically they offer rebates for brand-name drugs

so that these drugs get preferred placement

on the formulary.

This preferred status encourages patients

to use the drug company's medications

rather than competing products.

When patients fill a prescription

for one of these medications,

the drug company pays a rebate to the PBM.

As a result, the actual price that the PBM pays for the drug

is lower than the list price.

PBMs may share some or all of these rebates

with insurance companies

to help lower overall insurance costs,

which allows them to charge enrollees a lower premium.

But rebates do not directly lower the out-of-pocket cost

that patients pay for a drug

because remember, what patients pay

is based on the list price,

even if the drug company has given a rebate

to the PBM for that drug.

These rebate arrangements have received a lot of attention

from lawmakers as they consider ways

to lower prescription drug costs.

The Trump Administration had proposed banning rebates

between drug companies and PBMs

for people who have prescription drug coverage

through Medicare, known as Part D.

Instead, drug companies could have offered rebates

directly to people enrolled in Part D

when they filled their prescriptions.

But the Administration retracted this proposal amid concerns

that it would lead to higher costs for insurance companies,

higher premiums for enrollees,

and higher Medicare spending by the federal government.

It is still possible that lawmakers could make some changes

to this rebate system to help people save money

on their prescriptions, but they're also talking

about many other ways to lower drug costs,

like bringing more generic drugs to market,

using lower drug prices in other countries

as a benchmark for prices in the U.S.,

allowing the federal government

to negotiate drug prices under Part D,

and letting Americans buy lower-cost prescription drugs

from other countries.

The fate of these and other proposals

is still up in the air.

(mild music)