The phrase “no more rebates” and recent guidance from the Department of Health and Human Services has sent a shiver down the back of every Pharmacy Benefit Manager (PBM) and manufacturer who together participate in rebate agreements.

Currently, all Medicare Part D rebates are protected by safe harbor regulations under the federal Anti-Kickback Statute, which otherwise prohibit payments in exchange for services under a federal healthcare program. If this safe harbor protection is altered to no longer encompass manufacturer rebates, these rebates could be completely prohibited under Medicare Part D. It’s also likely that the Commercial business will quickly follow suit.

In today’s world, it is very difficult for a new product to succeed even with a significant rebate offer. Simple math shows PBM/payer relationships are largely driven by the total rebates collected by the PBM and then passed through to the plan sponsor (payer). A straightforward calculation is one in which Total Rebates = Number of Units x Rebate Per Unit. Therefore, if an established product is doing a high volume with a lower rebate, it’s very difficult for a new product entrant to offset the total rebate dollars, even with a higher per unit rebate.

Fast-forward to new products coming in at a lower net price:

  • Will it be easy for an existing product to simply match the price, in order to keep market share? Conversely, will products having the most attractive cost, in combination with measurable outcomes, become the product of choice?
  • Will this drive manufacturer/payer/PBM arrangements more toward the value-based contracting that so many in the industry seek, but have been slow to adopt?
  • Or will branded products go the route of generic injectables, where in some cases the pricing has dropped so low that many manufacturers left the category, thereby creating a shortage in the market?

While everyone is seeking solutions to ever-rising drug prices, this yet-to-be-proven model raises many questions regarding if we are heading to drug price stabilization or a race to the bottom. The truth is out there!

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