Last week, the Centers for Medicare & Medicaid Services (CMS) released its 713-page proposed policy changes and updates for the Medicare program. See the links below.
Buried in this document is a radical concept: Part D plans would be required to recognize the value of manufacturer rebates and pharmacy payments in retail prescription prices. These amounts are two key components of Direct and Indirect Remuneration (DIR) that are currently paid to plans. CMS is asking for feedback for future rulemaking but did not propose any specific changes. Any program modifications would not occur until at least 2020 or later.
However, it’s clear that CMS views the high-list-price/high-rebate system—what I term the gross-to-net bubble—to be a fundamental source of warped incentives and cascading problems. Before you check out for the holiday weekend, I unpack the complex structure of Medicare Part D to explain why CMS is proposing its pass-through solution. This will help you digest CMS’s proposal for disruptive change to pharmacy benefit managers’ (PBM) profit model and our current drug channel system.
A personal observation: Medicare Part D, like commercial pharmacy benefit plans, now operates like reverse insurance. The sickest seniors taking medicines for chronic, complex illnesses generate the majority of manufacturer rebate payments. These funds are then used to subsidize the premiums for healthier seniors. To me, this structure is the opposite of how insurance is supposed to function. It seems as if CMS concurs.
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