The price that sets cost-sharing

Senator Ron Wyden’s proposed Creating Transparency to Have Drug Rebates Unlocked, or C-THRU, Act would change how financial information and price concessions move through the Medicare Part D program. The bill would require public disclosure of pharmaceutical rebates negotiated by Pharmacy Benefit Managers, or PBMs. It would also set a minimum rebate percentage that PBMs would have to pass on to health plans.

The main pricing issue concerns the meaning and use of “negotiated prices.” That term determines the amount used to calculate a Part D enrollee’s cost-sharing at the pharmacy counter under Medicare prescription drug coverage. A change to that definition could affect what beneficiaries pay when they fill a prescription, even if the bill’s stated purpose is to make rebate arrangements more transparent.

Under current CMS drug pricing and payment materials, the negotiated price is the amount agreed upon by the Part D sponsor and the dispensing pharmacy. It includes price concessions from the network pharmacy that can be determined with reasonable accuracy at the register. In practical terms, the negotiated price is tied to the pharmacy transaction after applicable pharmacy-side discounts have been taken into account.

The enrollee receives the direct benefit of that price when filling a prescription. Manufacturer rebates follow a different process. PBMs receive those payments later, and the rebates benefit the federal government and plan enrollees through lower overall monthly premiums. The current system treats the pharmacy price and the later rebate payment as separate financial events.

The summary’s pricing problem

The Senate Finance Committee released a summary of C-THRU before releasing the bill text. The summary describes the current system (a related issue appears in CMS proposed rules for reporting AMP and best price) as though a beneficiary’s coinsurance is based on the manufacturer’s initial list price. Its example begins with a manufacturer price of $100 and states that the beneficiary pays coinsurance on that amount instead of on an $80 price negotiated by the PBM.

That description does not account for the dispensing pharmacy’s role. A manufacturer’s price and a PBM’s agreement with a manufacturer do not necessarily determine the final amount reimbursed to the pharmacy. The pharmacy transaction has its own contractual terms. Under the current definition, those terms determine the negotiated price used for cost-sharing.

A separate example shows the difference. A PBM might negotiate a final reimbursement rate of $78 with a local pharmacy. Under current law, the patient’s out-of-pocket cost-sharing is based on that $78 pharmacy rate. If the proposed approach instead uses the $80 manufacturer-PBM rate described in the summary, the beneficiary would pay more at the counter.

The distinction affects the amount due when the prescription is filled. A proposal described as a way to improve transparency could result in a higher immediate bill if it replaces the pharmacy’s negotiated rate with another negotiated amount. For people comparing coverage and out-of-pocket exposure, the same issue appears in coverage and cost-sharing for GLP-1 drugs, where the price used to calculate a patient’s share can matter as much as the listed price.

The point-of-sale challenge

The bill text also raises an operational issue by requiring all negotiated price concessions to be given directly to the patient at the point of sale. When a concession cannot be calculated exactly at the register, the bill would require an estimate based on the previous year.

That rule would require manufacturers, PBMs, and pharmacies to coordinate financial information that may not be available to all of them at the same time. The manufacturer does not know the pharmacy reimbursement rate, while the pharmacy does not know the amount of the manufacturer rebate.

Rebates arrive after the prescription has been filled. Manufacturers pay them to PBMs months after the transaction, and financial reconciliations can occur months after the end of the health plan year. A point-of-sale reduction based on an expected future rebate would give the patient an immediate discount before the manufacturer had provided the money supporting that discount.

That timing would create a financial gap. Someone in the supply chain would have to absorb or finance the difference until the rebate was paid and reconciled. The proposed point-of-sale rule does not identify how that gap would be handled.

The unanswered responsibility

The main policy question is who would have to carry the delayed rebate amount. An independent pharmacy could face the gap even though it would not know the manufacturer’s rebate. A PBM could bear the cost despite receiving the rebate later. The federal government could also be asked to carry the exposure. Each option raises questions about responsibility for delayed payments and related financial risk.

The confusion in the committee summary adds to the need for precise definitions. Several prices can be associated with one prescription, and each can reflect an agreement between different parties. Under current rules, only one of those prices determines the beneficiary’s share at the pharmacy counter. Before changing that rule, policymakers would need to account for the relationships among manufacturers, PBMs, pharmacies, health plans, and the federal government.

Until those mechanics are addressed, C-THRU’s proposed changes to negotiated prices leave important questions unresolved. More rebate disclosure does not determine which price a patient pays, when a concession is funded, or which participant bears the cost of a delayed payment. A workable change would need to answer each question while avoiding an unintended increase in out-of-pocket costs for Part D beneficiaries.