United States: C-THRUs Proposed Changes To Negotiated Prices – A Demonstration Of The Part D Programs Complexities And Misunderstandings

As described in last week's post, Senator Wyden has introduced the C-THRU Act that seeks to require public disclosure of PBM rebate amounts, establish a minimum rebate percentage that PBMs must pass on to Part D and Exchange Plan clients, and intends to change the definition and/or application of "negotiated prices" under the Part D program. This post focuses on the portion of the C-THRU Act that relates to Part D negotiated prices.

According to the Summary of The Creating Transparency to Have Drug Rebates Unlocked (C-THRU) Act ("Summary") released by the Senate Finance Committee prior to the release of the actual bill, Part D enrollee cost-sharing is based off the price at which the pharmacy acquires the drug. The Summary provides the following example: "a drug maker sets a drug[']s price at $100. Under current law, Part D beneficiaries pay co-insurance based on the $100 price, not the lower price, say, $80, that a PBM negotiates with a drug maker. Seniors in Medicare ought to benefit from these negotiations." This example is inaccurate, ignores the definition of and parties involved in negotiated prices as defined under the Part D regulations, and assumes that Medicare seniors currently do not benefit from manufacturer rebates. In fact, CMS recently recognized that manufacturer rebates are helping keep Part D enrollee premiums down.

"Negotiated prices" is a defined term under the Social Security Act, and is also defined in greater detail in the Part D regulations. As defined in regulation, negotiated prices are prices agreed to by the Part D sponsor (or its PBM) and the network dispensing pharmacy and include all price concessions from the network pharmacy except those that cannot be reasonably be determined at the point-of-sale. The scope of changes proposed by the C-THRU Act are unclear because the text of the bill does not appear to support what the Summary says the bill does.

Based on the bill, the C-THRU Act would add a subsection to the definition of negotiated prices requiring that all negotiated price concessions be provided at the point-of-sale, or be approximated in the negotiated price (based on last year's prices) if all price concessions are not able to be calculated at the point-of-sale. At first glance this change is relatively significant because it expressly requires approximated negotiated prices to be based on the previous year. However, if the intent of the change is accurately expressed in the Summary, the change is even larger than the bill's language suggests.

The Summary explains that the C-THRU Act requires "cost-sharing for Part D enrollees to be based off the negotiated price of the drug as agreed to by the drug manufacturer and the PBM...so that Part D enrollees [ ] fully benefit from discounts and rebates provided by drug manufacturers." This would be an significant change, and could be detrimental to Part D enrollees. As stated above, negotiated prices are currently the prices agreed to between the Part D Plan (or its PBM) and the network dispensing pharmacies. C-THRU's intended change, at least based on the Summary, ignores a pharmacy's role in the Part D drug transaction and the price charged to the Part D enrollee. It is unclear whether those supporting the bill appreciate the significance of the change (replacing the pharmacy with the manufacturer) because, based on the Summary document, there is a misunderstanding as to how a Part D enrollee's cost-sharing is calculated today. The misunderstanding and potential impact can best be explained through expanding the example provided by the Summary.

Example

  • Drug maker sets a drug's price at $100 (Average Wholesale Price ("AWP")=$100)
  • Part D plan's PBM negotiates a 20% rebate with the drug maker (AWP-20%)
  • Pharmacy A participates in the Part D plan's network and purchases the drug for $75 (AWP – 25%)
  • Part D plan's PBM agrees to reimburse Pharmacy A $78 for the drug (AWP-22%)

According to the Summary, the Part D enrollee's cost-sharing currently is based on the $100 AWP. This is not accurate. Under current law, in this example the Part D enrollee's cost share is based on $78, the negotiated price between the Part D Plan (or its PBM) and Pharmacy A. If C-THRU changes the definition of negotiated prices (as explained in the Summary) specifically tying it to the price of the drug as agreed to by the drug manufacturer and the PBM, the Part D enrollee's cost share would then be based off of AWP minus the rebate, or $80 in the example, and would not decrease the enrollee's cost-share.

The Plan or PBM negotiations with a manufacturer for a drug rebate are completely separate from negotiations with dispensing pharmacies. The manufacturer does not know the price the Plan or PBM has negotiated with the pharmacy and the pharmacy does not know the rebate the Plan or PBM has negotiated with the manufacturer. Under the Part D program as currently operating, the Part D enrollee receives the benefit of the negotiated price with the pharmacy at the point-of-sale and the federal government (through CMS) and enrollees (through lower premiums) receive the benefit of the negotiated rebate with the manufacturer when the Part D plan reports the rebates (and other remuneration) it receives through the Direct & Indirect Remuneration ("DIR") Report each June. The information in the DIR Report is used to adjust the Part D plan's payment or reconciliation with the government. Rebates have historically been reported through the DIR Report because whether a given prescription filled under the Part D plan qualifies for a rebate under a rebate contract and the exact value of the rebate is not known at the time an enrollee fills his or her prescription, and is most often not determined, calculated, and paid for months after the plan year ends.

Separately, if the supporters of the C-THRU Act intend Part D enrollee cost-sharing to be based off a pharmacy's negotiated price and then further reduced by the negotiated price between the PBM and the manufacturer (made effective by rebates paid often a year later), they will create additional financial questions for Part D Plans, actuaries, PBMs, pharmacies and CMS because reducing an enrollee's cost-share paid to a pharmacy, increases the difference between the cost-share and the price the pharmacy agreed to receive from the Plan and/or PBM. The difference will not be received by a Plan until manufacturers pay rebates after the end of the plan year. The supporters of the bill need to answer what entity or entities will be required to float the difference over the course of the year.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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