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Seniors, Taxpayers Will Face Billions in Higher Drug Costs Without Rebates


President Trump has signed an Executive Order to eliminate drug rebates in Medicare Part D, after the Administration withdrew the same proposal (known as the “rebate rule”) in 2019 because of broad opposition from a diverse array of stakeholders across the health care system for being too expensive and ineffective.

The rebate rule was rejected in 2019 because it would not lower drug costs, and instead, would raise seniors’ premiums and increase Medicare and Medicaid’s cost to taxpayers by nearly 200 billion dollars—all while providing a 40 billion-dollar windfall to Big Pharma.

A provision in the Executive Order requires that the Secretary of Health and Human Services (HHS) cannot move forward with the policy unless they certify that it does not increase premiums or government spending, which is an impossibility. Amid a global pandemic that is disproportionately affecting seniors and putting budgetary pressure on governments and taxpayers alike, now is not the time to bring back a policy that will raise costs for seniors and taxpayers.

Seniors will face higher premiums. Without rebates, premiums in Medicare Part D would increase by up to 25%, according to HHS’s Office of the Actuary.

HHS Secretary Alex Azar acknowledged administration officials were well aware when they proposed the rule that it could impact premiums and said in August 2019 that he, “totally supports” the President’s decision to withdraw the plan for that very reason.

The fact that eliminating rebates will raise premiums for seniors remains as true today as it was last year. Now more than ever, we need to lower seniors’ costs, not raise them. 

Taxpayers will face billions in higher costs for Medicare and Medicaid. The Congressional Budget Office (CBO) estimated in 2019 that the proposed rule to eliminate rebates will increase spending in Medicare by about $170 billion and for Medicaid by about $7 billion. These estimates make this rule one of the most expensive regulations ever proposed. Our system can’t bear this strain.

With rising enrollment as a result of COVID-19, state Medicaid programs need every tool at their disposal to help control drug costs. If fully utilized, Pharmacy Benefit Manager (PBM) tools could save Medicaid more than $100 billion over the next ten years. We need to be deploying more cost-saving tools like PBM-negotiated rebates, not taking away the tools Medicaid programs are relying on to keep costs in check.

Big Pharma will save billions at the expense of seniors and taxpayers. The only winners from the Executive Order are drug companies that stand to save anywhere from $17 billion to nearly $40 billion over the first ten years as a result of this rule, according to HHS. This is because the Executive Order, if it takes effect, will move fewer beneficiaries into and through Part D’s donut hole, so drug companies would end up paying much less.

What’s more, drug companies would have to voluntarily lower their prices by 45% to hold seniors harmless from premium hikes needed to offset lost rebates. Drug companies have proven time and time again that they will not stop hiking their prices. Even during a global pandemic, drug companies launched another wave of price hikes at the beginning of July, bringing the total number of price increases in 2020 to nearly 900.  

Drug company executives already refused to commit to lowering their prices if the rebate rule were to pass when directly asked while testifying to the U.S. Senate Committee on Finance in February 2019. As the Campaign for Sustainable Rx Pricing (CSRxP) summarized, “the executives’ answers were laced with qualifiers from ‘that definitely would be my goal’ to ‘we would try to’ and even complete pivots such as, ‘[l]owering list price has to be linked into better access and affordability at the counter for the patients.’ Their answers underscored a key flaw in the premise of the rebate rule: Nothing in the rule guarantees drug makers will lower list prices by the full amount of existing rebates, alter how they price prescription drugs or stop the industry’s never-ending price hikes. In fact, the elimination of rebates would hand more power to drug makers to unilaterally determine price.”

Rebates are lowering drug costs in Medicare; we shouldn’t eliminate what is working. Recent independent reports by the Government Accountability Office (GAO) and the HHS OIG have found that rebates are currently driving savings in Medicare Part D. GAO found that PBMs saved Medicare Part D $29 billion on prescription drugs in just one year, and HHS found that while spending growth on drugs with rebates was limited to 4%, drugs without rebates in Part D saw spending increases of 19%. These analyses both demonstrate rebates are currently driving significant savings in Part D. It doesn’t make sense to get rid of what is already successfully lowering costs for patients in public programs.

HHS should abandon the policy to eliminate rebates in Medicare Part D, which their own estimates show will not deliver the lower drug costs that patients need, and instead threatens to skyrocket premiums for seniors and costs to taxpayers. No one can afford to bear that burden at a time like this, and seniors and taxpayers should never be forced to spend more just to pad Big Pharma’s profits.