Health Care Reform and Brand Drug Rebates; Follow The Money

The Washington Post today in an article by Ceci Connolly reports that budget plans to increase the rebate for brand drugs to Medicaid from 15% to 21% would create $19.5B in savings over 10 years. "This move is expected to spark strong opposition from the industry".

A question the public interest requires an answer to is why the PBM's or insurance companies administering Medicaid would get to keep 85% or 79% of the rebates paid on brand drugs?

Another question would be how does the generic utilization rate under Medicaid compares to the VA which has a formulary primarily populated with generics. I mean, if its a good enough drug for our veterans it should be good enough for medicaid recipients, right?

Last year, CMS required pass through of reimbursement levels paid to the pharmacy. I wonder if they are also viewing what the PBM's bill the plan? I suspect they are not and this is a failure most self-respecting benefit manager in the private sector could ill afford. True transparency requires a view both of what the plan paid as well as what the pharmacy was reimbursed along with complete 100% pass through of all rebates from brands. So lets look at what CMS is doing with a hat tip to Mcdermott, Will & Emery;

CMS has revised an earlier proposal to require Plans who contract with
pharmacy benefit managers (PBMs) to report costs on a pass-through basis. The
negotiated price that must be made available to a member (when, the member is in
a coverage gap, for example) must be the price the PBM pays the pharmacy—not the
price the Part D sponsor pays the PBM. Similarly, CMS proposes to require
Plans to report drug costs based on the price paid to the pharmacy or other
dispensing entity, rather than the price the Plans pay to a PBM. CMS has
taken the position that any net profit to the PBM as a result of a difference between the amount the PBM pays the pharmacy and the amount it collects from Plans is effectively a risk premium paid to shield the sponsor from price variabilities, and is therefore an administrative expense rather than a drug cost. The amount of drug costs affects reinsurance and risk corridor payments to the Part D sponsor. The proposal would be effective for coverage year 2010.

I wonder how much pharma and the PBM's paid lobbyists for that position?

It is common knowledge to savvy benefit managers the the magnitude of their brand rebate is directly correlated to their success in achieving appropriate levels of generic utilization. The bigger the rebate for brands the bigger the problem and the higher the pharmacy trend. Yes, your administrative costs will increase when you eliminate rebates from your PBM and price spreads from your generics but if you couple those efforts with an emphasis on therapeutic infusion you will reduce your overall claim costs. Its OK to have higher retention levels if the services you pay for reduce your claims costs as any decent group man would tell you. The cost of claims dwarfs the cost for truly transparent PBM administration costs. Psst...Washington Post...follow the money...there is a Pulitzer for the individual who exposes this sordid mess.