Rebates and out-of-pocket cost

In recent decades, drug prices have risen. To offset this cost, pharmacy benefit managers have negotiated increasingly large rebates which drug manufacturers pay health insurers. PBMs argue that rebates help keep net drug prices down. Manufacturers argue that PBMs want higher list prices so they can negotiate larger rebates. Patients may not like rebates if their cost sharing is based on a drug’s list (i.e., gross) price rather than the after-rebate (i.e., net) price.

But do larger rebates really lead to a meaningful increasing in patient out-of-pocket cost? If so, how big a problem is this?

To answer these questions, a study by Yeung et al. (2021) uses data from from the 2007-2018 Medical Expenditure Panel Survey (MEPS) on patients who filled at least one branded drug. MEPS was used to measure patient medication use, cost sharing, health insurance coverage and demographics. Information on rebates came from SSR Health data.

Based on these data sources, list prices for branded drugs between 2007 and 2018 increased by 13.3% per year over this time frame, but net prices increased only 7.8% per year. Patient out-of-pocket costs increased only 2.8% per year over the same time frame. What was the relationship between rebates and out-of-pocket cost?

The rebate sizes were associated with statistically significant mean out-of-pocket increases per branded prescription of $4 (95% CI, $4 to $4) from 2007 to 2013 and $11 (95% CI, $10 to $12) from 2014 to 2018.  From 2014 to 2018, rebate sizes were associated with statistically significant mean increases in out-of-pocket costs per prescription of $13 (95% CI, $12 to $13) for individuals with Medicare, $6 (95% CI, $6 to $7) for individuals with commercial insurance, and $39 (95% CI, $34 to $44) for individuals without insurance. After adjusting for list prices, there was no association between rebates and out-of-pocket costs

In short, rebates are correlated with higher out-of-pocket cost overall, but that mostly because list prices are also rising. However, for uninsured patients–who pay the full list price and who do not benefit from lower premiums due to rebates–the impact of rebates on cost is largest. Thus, rebates may not be a major problem on average but they (i) they impose a higher burden on the uninsured, and (ii) they increase the likelihood that Medicare Part D beneficiaries reach the catastrophic phase, shifting more cost to the Medicare rather than Part D plans.

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