Medicare Part D rule change would be another win for pharma’s lobbyists, analyst says

The Centers for Medicare & Medicaid Services unveiled a proposal for a rule change that could target PBMs.

Pharma stands to win again in Washington, D.C., if a new Part D rule proposal from the Centers for Medicare & Medicaid Services comes to fruition. Last week, the agency put out potential changes to solicit feedback, with a drug pricing tweak one area under consideration. 

Importantly for pharma, CMS proposes applying pharmacy price concessions and a portion of manufacturer rebates at the point of sale to lower out-of-pocket costs for brand-name drugs, Evercore ISI analyst Michael Newshel wrote in a note explaining the potential change. 

Under current regulations, Part D sponsors are allowed to apply the discounts at point of sale but generally don't, the agency wrote in its proposed rule change document

If implemented, the change "would lower the out-of-pocket price paid by consumers for brand name drugs (though higher premiums would offset), while also potentially lowering the revenue and rebate dollars that currently flow to drug distributors and PBMs, particularly if such a move to transparency were adopted more broadly beyond Part D," Nishel wrote. But he cautioned that it's only an idea right now. 

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The proposal comes after a tense fight between drugmakers and pharmacy benefit managers (PBMs) over who's responsible for skyrocketing drug prices. Drug companies say growing rebates have driven up list prices, while PBMs say their tough negotiating saves billions in drug costs and that drugmakers always set their prices.

Reacting to the potential change, Josh Schimmer, another Evercore ISI analyst, wrote that pharma's massive lobbying spend in Washington, D.C., "seems to have paid off" again, even after a pricing firestorm that featured controversies at several drug companies. Pharma has outspent all other industries with $3.7 billion in lobby spending, according to data dating back to 1998, the Center for Responsive Politics figures. 

"Another bullet dodged, thanks to the power and influence of innovation," Schimmer wrote in a note to clients. 

PBM association PCMA has its concerns with the idea. The group said a change to force insurance plans to "estimate and apply" manufacturer rebates at the point of sale would raise premiums by $28 billion and taxpayer expenses by $82 billion over 10 years, citing CMS figures. The change would also create up to a $29 billion windfall for pharma companies, according to the group.

Further, if the agency forces plans to apply pharmacy price concessions at the point of sale, that would add another $16.6 billion to taxpayer costs over the next decade and $5.7 billion to premiums, according to CMS data. 

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New requirements "outlined in the proposed rule could put at risk the choice and affordability of preferred pharmacy plans—the most popular and widely chosen options in Part D," according to PCMA's statement. "Protecting the stability of those plan options should be a top priority for regulators.” 

The proposal comes after a two-year pricing firestorm that has attracted lawmakers' attention on a case-by-case basis as individual controversies grabbed headlines. But Congress has been unable to advance with legislation addressing high drug costs. In response, many states have taken the issue into their own hands, and new FDA Commissioner Scott Gottlieb, M.D., is working to speed generic approvals to boost competition throughout the industry.