Medicare spending would climb by $187 billion and Medicaid by $7 billion over the next decade if the CMS finalizes a rule to get rid of the safe harbor for rebates for Part D drugs, according to from the Congressional Budget Office.
The figure is slightly below the $196 billion in new spending over the next decade that the CMS' Office of the Actuary predicted earlier this year.
The Trump administration proposed replacing the safe harbor for rebates from prosecution under the anti-kickback statute with a new one for discounts at the point of sale, by January 2020. The comment period closed last month.
The CBO, the official congressional scorekeeper, predicted that the increase in Medicare spending will occur via an increase in premiums for Part D plans, which would rise if the rebates are not there to reduce premiums.
"Because the government subsidizes 74.5% of the basic beneficiary premium, higher premiums would lead to larger federal subsidies, thus increasing federal spending," the CBO said.
Another reason is due to greater utilization of prescription drugs by Part D beneficiaries because of lower prices at the pharmacy counter.
"Beneficiaries who do not fill some of their prescriptions because their current out-of-pocket expenses are high would be more likely to fill them and to better adhere to their prescribed drug regimens if their costs were lower, as they would be under the proposed rule," the CBO said.
Implementation would be costly due to the timing, the agency added.
The CMS on April 5 instructed Part D plans to submit based on the status of the final rebate rule as of June 3. The CBO said that the rule isn't likely to be finalized by that point and the agency does not "expect plans' bids to reflect the effects of the final rule."
But the CMS said that if there were a change to the safe harbor rule in 2020 then it would establish a voluntary two-year program where the government absorbs 95% of the losses in 2020.
"If the proposed rule was implemented, that program would increase federal spending by $10 billion," CBO said.
HHS Secretary Alex Azar has been a major proponent of the rule, calling the rebates "kickbacks" in multiple speeches and that the rebate structure creates a perverse incentive for drugmakers to raise prices. Because the insurer and pharmacy benefit manager gets a cut of the rebate, the drugmaker must raise the price in order to get their product added to the formulary, HHS charges.
But insurers and PBMs counter that the rule itself doesn't do anything to force drugmakers to lower prices. They also argue that the rule takes away a key tool that insurers and PBMs use to get manufacturers to lower prices.
Soon after the analysis was released, opponents of the rule pounced that it was the latest sign that the rule was misguided.
"If the administration proceeds with a final rule, rather than create an entirely new system, point-of-sale savings should be administered through PBMs, who are uniquely positioned to implement them smoothly and seamlessly," said J.C. Scott, president and CEO of the PBM lobbying group Pharmaceutical Care Management Association, in a statement.
The CBO said in its analysis that it believes pharmaceutical manufacturers would withhold some of the discounts that they previously negotiated for rebates, "particularly those based on whether a PBM met targets for the share of prescriptions filled with a manufacturer's drug."
The scorekeeper projects that a drugmaker would withhold about 15% of the current amount they rebate to PBMS and negotiate discounts for the remaining 85%.
"CBO expects that rather than lowering list prices, manufacturers would offer the renegotiated discounts in the form of chargebacks," the analysis said. Chargebacks are discounts that would be only for prescriptions in Medicare Part D and Medicaid managed care, rather than the entire prescription drug market.