Has the rebate debate jumped the shark?

As Congress and the Trump administration zero in on drug-price relief, rebates have come under intense scrutiny. Will they stay or will they go?

Industry watchers hoping for a conceptual breakthrough during last week’s high-profile congressional hearings came away disappointed. PBMs deflected senators’ questions about how much they profit from rebates. Over in the House, exchanges between PBMs, insulin makers and pols over insulin pricing got heated. But what, if any, legislative action to expect remains unclear.

In comments submitted to an HHS proposal to remove the safe harbor protection on rebates on Rx drugs in Medicare Part D, drug industry trade groups PhRMA and BIO voted in favor. Payer lobbyists Pharmaceutical Care Management Association (PCMA) and America’s Health Insurance Plans (AHIP) obviously framed the opposite narrative, setting up the usual stalemate.

Broadly speaking, rebates are paid by a drugmaker to a PBM, who then shares a portion with the health insurer. At issue is to what extent rebates find their way to consumers or are pocketed by PBMs or insurers (research shows the portion PMBs hold onto is shrinking), and whether they create an incentive for manufacturers to raise list price because drug makers think PBMs prefer high-cost drugs with big rebates over cheaper meds.

But there was a moment during last week’s Senate Finance Committee hearing when that debate jumped the shark. It came when the five PBMs—namely Express Scripts, CVS Health, Humana, OptumRx and Prime Therapeutics—were delivering their introductory remarks.

“The common misperception that Prime and other PBMs are simply transactional ‘middlemen’ entirely ignores the immense value we provide in helping to ensure clinically appropriate drug utilization to drive better outcomes,” said Mike Kolar, interim president & CEO of Prime, in prepared comments before the committee.

Kolar wasn’t taking issue with semantics as much as he was asking for a little respect. PBMs were once considered a legitimate force to be reckoned with in the pricing battle. It was Express Scripts’ vocal criticism of the high price of Gilead’s Sovaldi and Harvoni hep. C drugs that elevated the issue of drug pricing to a subject of national discourse and a bipartisan talking point. Now, they’re reviled for what’s considered by many to be a perverse incentive that befouls the healthcare system.

I’m not rallying sympathy for America’s drug middlemen. For me, Kolar’s words were a memorable moment of the hearings, because they seemed to suggest we’ve reached a point where perception of “who’s the villain” is more important than the reality of patients’ experience with high drug prices at the pharmacy counter.

When drugmaker CEOs were under the Senate microscope in February, they cast PBMs as the villain. When it was their turn last week, PBMs pointed the finger at manufacturers.

Bottom line: Patents need relief from high costs at the point of care, but the current transaction model is not delivering. A lot of other players in the drug supply chain are involved (technically, there are six), and energy is better spent reimagining how to get them all pulling in the same direction so the consumer benefits.

The HHS draft rule on rebates, which the administration plans to finalize by June 1, could be a good start. The safe harbor would ban rebates and add a point-of-sale manufacturer discount, to be reflected in the patient’s out-of-pocket cost at the counter. If it goes into effect next year, it will allow manufacturers to offer discounted prices directly to patients, benefiting those in Medicare drug plans and people with Medicaid managed-care plans.

All of the entities in the supply chain—from health plans to PBMs to retail pharmacies and drug wholesalers—may need to re-orient their business models. Drug makers, for one, would need to find an alternative to offering big rebates to win favorable formulary placement, basically changing the way they contract with PBMs.

This change, by itself, won’t solve the issue of high drug prices. But it may be the best way suggested thus far to reimagine the rebate.