The recently enacted Inflation Reduction Act includes a series of provisions intended to reduce prescription drug costs for Medicare beneficiaries. Because the bill got through Congress via the budget reconciliation process, it was not allowed to include drug pricing provisions that apply to the commercial market (i.e., employer-sponsored health plans).

So, the law couldn’t do it, but can employers do it on their own? Or maybe the bigger question is: Will they? Worse yet, will this law create a significant cost shift from Medicare to private sector plans? Only time will tell!

Specific provisions:

  • Beginning In 2023, require drugmakers to pay rebates to Medicare if drug prices rise faster than inflation.
  • Beginning in 2023, eliminate cost-sharing for adult vaccines covered by Part D.
  • Beginning in 2024, eliminate the 5% coinsurance for Part D catastrophic coverage.
  • Beginning in 2024, expand eligibility for Part D subsidies to more low-income people.
  • Beginning in 2025, cap Part D out-of-pocket costs for seniors at $2,000 per year, including an option to break that amount into monthly payments.
  • Beginning in 2026, require Medicare to negotiate the prices of 10 high-cost Part D drugs. The number of drugs eligible for negotiation increase every year until hitting 20 Part D and Part B drugs in 2029.

The American Benefits Council (ABC) voiced strong opposition to the drug pricing provisions and concern that they will exacerbate cost-shifting to employer plans as drugmakers seek to recover revenue lost under the Medicare program. A recent report from the Congressional Budget Office echoed those concerns, suggesting that the inflation rebate and negotiation provisions would increase drug launch prices.

“Employers are not willing to write a blank check for prescription drugs, nor are they willing to accept the absence of appropriate price transparency,” ABC cautioned lawmakers. But is this true? If employers allow their surrogates (PBMs and health insurers) to pay inflated drug prices on their behalf, it will be another sad day in Mudville ꟷ and a huge, missed opportunity!

Generally speaking, employers have allowed pharmacy benefits managers and health networks to agree to any price on their behalf for years. And most of these intermediaries will agree to any price ꟷ as long as they can maintain their competitive positions and desired bottom-line results (often via rebates and spread pricing). That’s one of the reasons why drugs can come to the market with inflated price tags that have no relationships to competitive value (efficacy versus cost when compared to therapeutic alternatives).

Will employers rise up and change their own purchasing models? Or will they continue to reinforce the opaque, rebate- and markup-driven systems prevalent in the market today? Also, will they cover any drug approved by the FDA regardless of cost?

Yes, some of these new drugs might be quantum improvements over existing therapies, but most are not. Most new drugs offer the majority of users [perceived] convenience more so than better outcomes. Many also come with serious and, usually underestimated, side effects (i.e., compromised immune systems and increased risk of cancer and cardiovascular issues).

Of course, some bold employers have already broken ranks from the prevailing systems and adopted new, more effective drug management models such as:

  • Fee-based, instead of rebate-driven PBM arrangements.
  • NADAC pricing, instead of AWP related spread pricing schemes.
  • Generic-driven formularies, including for diabetic medications.
  • Actual validation of drug appropriateness, especially for specialty medications.
  • Value-based pricing arrangements for high-cost drugs.
  • Carve-out from medical benefits the administration of certain specialty medications, including super high-cost cell and gene therapies.

These strategies and more have already demonstrated they save employers significant amounts of money.

Wondering if you’re still in the traditional, rebate-driven plan management model?

  • Does your PBM report line-item AWP and plan payment information in the same claim history file?
  • Does your PBM report line-item, drug-specific rebates to you?
  • Does your PBM contractually serve as a claim fiduciary?
  • Can you audit Prior Authorization records and find objective medical evidence to support those decisions?

If you can’t answer “yes” to these questions, you are still in the old model that’s driving employer costs ever higher ꟷ and is more vulnerable to future cost shifting. And these are just baseline questions. This is where leading employers begin to break ranks from the status quo.

If you want to mitigate the impact of the new Medicare drug pricing changes, now is the time to make a move to a better drug management platform.