Why do we need drug rebates, anyway? A top lawmaker wants to know
WASHINGTON — Sen. Lamar Alexander has a question: why do we have drug rebates, anyway?
“Why do we need rebates?” the Tennessee Republican asked a panel of pharmaceutical industry representatives at a Senate committee hearing. The Health, Education, Labor, and Pensions committee met Tuesday morning for the second of three hearings on drug pricing, and heard testimony from five interest groups representing companies that play different roles in getting medicines to patients.
Rebates are payments made by drug manufacturers to “pharmacy benefit managers,” middlemen that negotiate drug prices on behalf of companies, unions, and government agencies. PBMs come up with lists of drugs that receive preferred coverage from insurers and also arrange rebates from drug makers in exchange for favorable insurance coverage.
Sometimes the payments that drug manufacturers make to PBMs are passed on to insurers, and sometimes insurers pass on to patients the savings from those rebates. But the amount of those payments are kept secret.
Sound complicated and opaque? Alexander seems to thinks so too.
“Why don’t we just get rid of rebates and let you negotiate directly with manufactures, take that $100 billion a year, and just reduce the list price?” Alexander asked Mark Merritt, president and chief executive officer of the Pharmaceutical Care Management Association, which represents pharmacy benefit managers. “Wouldn’t it be simpler for us to understand where the money goes?”
Alexander’s question seemed to betray a misunderstanding of the situation — as he admitted, “I have yet to figure out where [the money] goes” — because pharmacy benefit managers do negotiate directly with manufacturers to determine the rebate amount.
Merritt didn’t say yes or no, but classified rebates as basically “volume discounts,” enabling groups that purchase more drugs to get lower prices.
After the hearing, Merritt clarified to STAT that he would be open to axing rebates.
“We’d be happy if manufacturers would just go to lowering the actual price as opposed to rebating different suppliers and so forth,” Merritt said. “But I don’t see that happening anytime soon.”