Time to tear down the Rx Rebate Wall

By Christi Shaw

When patients are denied access to innovative medicines, they typically blame their health plans. But sometimes the true culprit is a pharmaceutical company.

It’s time for a better system.

More new medicines are launching than ever before—and it’s vital that patients in need can get them. Recent research by Columbia University has shown that every dollar spent on newer medicines saves at least $2.50 in hospital costs. And for every year that recent medical advances extend people’s lives, newer medicines are responsible for nearly nine months of those gains.

Too many Americans are not getting the latest therapies because our health system incentivizes health plans to steer patients to older, high-volume medicines. In some cases, manufacturers of older medicines leverage this dynamic to impede competition.

It happens because of the way pharmaceutical rebates work. Pharmaceutical companies offer billions of dollars in rebates each year to health plans and pharmacy benefit managers. In exchange, these health plans and pharmacy benefit managers give those therapies preferential access, creating “steps” that require patients to try those medicines first before giving them a newer medicine which their doctor and clinical studies may determine is best for them. This system is called “step therapy.”

When the system works as intended, some payers use those rebates to cover drugs and to help reduce the premiums that patients pay for health insurance—helping more people afford coverage.

But rebates also put new medicines at a financial disadvantage from the start. New products, of course, launch with fewer prescriptions than older medicines with an established market presence. Because rebate revenue is the product of a medicine’s list price, volume, and rebate rate, a new product with less volume inevitably gives health plans less in total rebates than an older product with established volume. Because insurers are able to spread the cost of medications to patients (via deductibles and co-pays) without passing on the rebate savings they negotiate with pharmaceutical companies, launching a new product at a discounted price is often not a viable strategy for gaining access.

This problem gets worse when an older medicine has received approval for multiple diseases and has built up lots of ongoing prescriptions. The company making that product can bundle rebates across the prescription volume for all of those diseases into one outsized rebate stream.

In this environment, a pharmaceutical company can use a large stream of rebates as an overwhelmingly powerful negotiating chip, asking health plans to disfavor or exclude newer medicines from their formularies, even if those newer medicines offer significant improvement in outcomes for patients at a lower price to the patient. This monopolistic system is called the “rebate wall.”

The rebate wall is especially strong in immunological diseases. In those diseases, a highly successful class of medicines have built up huge rebate payments, which are impossible for new medicines to match.

This practice isn’t good for patients or the healthcare system. Recent research found that individuals with rheumatoid arthritis and psoriatic arthritis in insurance plans with step therapy had lower medication adherence and worse treatment outcomes compared to people in plans without access restrictions or with a prior authorization only. That means these patients suffered pain and more arthritis progression. Given that lower medication adherence is associated with poorer outcomes and higher subsequent medical spend, it’s clear that the rebate wall costs the system more money, rather than less.

We need to fix this.

The Trump Administration recently announced a proposed rule that, if enacted, would make significant changes to drug rebates in parts of the Medicare and Medicaid programs. This rule would eliminate the anti-kickback safe harbor that is currently applied to drug rebates, effectively mitigating the negative impact that I have outlined above. In doing so, the administration has clearly identified and targeted incentives within the healthcare system, which have led to negative arrangements between pharmaceutical manufacturers and insurance middlemen.

Another step is to embrace indication-based pricing. If prices and rebates were negotiated for each disease, not bundled across several diseases, the rebate wall would quickly become a lot lower and a lot weaker. The Federal Trade Commission, which is responsible for protecting consumers from anticompetitive behavior, could also intervene by prohibiting manufacturers from erecting rebate walls.

Weakening the rebate wall and step therapy requirements will improve the entire U.S. health system. It will encourage pharmaceutical companies to focus on what they do best—bring new and improved medicines to patients versus incentivizing to block them. It will give payers, patients, and physicians more choices, which will boost price competition and lower costs. More patients will be able to get the medicine that’s best for them and get it sooner.

Together, we can tear down the rebate wall, improve patients’ health, and save the health system money.

Christi Shaw is Sr. Vice President and President of Lilly Bio-Medicines at Eli Lilly and Company, a biopharmaceutical company based in Indianapolis, Ind.

This content was supplied by Eli Lilly and Company and published by WP BrandStudio. The Washington Post newsroom was not involved in the creation of this content.

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