The current COVID-19 health crisis and drug affordability has put growing attention on the practice of rebate walls – in which drug manufacturers provide volume-based discounts to insurers and pharmacy benefit managers (PBM) – because it’s also kept lower-cost prescriptions off the market.
“Rebate walls have existed for a while now, but are a growing problem because the current rebate system does not serve the interest of patients, they serve the interests of the supply chain,” Wayne Winegarden, director of the Pacific Research Institute’s (PRI) Center for Medical Economics and Innovation, told the Northern California Record by email.
The PRI has just published Winegarden’s brief on the topic.
“The discounts created by rebates do not reduce the out-of-pocket costs for patients – only for insurers and payers – and the pricing system is complex, opaque, and anti-competitive practices that would be outlawed in other industries are permitted,” Winegarden told the Record.
The combination of these factors causes higher list prices, which form the basis of patients’ costs. “Insurers benefit from the large rebates enabled by this fast growth in list prices, paying the net price of the drugs,” Winegarden said. “The rebate wall emerges when a drug has a large volume share (often when a medicine treats multiple conditions), and these rebates are tied to that volume. Competition in this case reduces PBM and insurer revenues because a new drug cannot compete with the volume of these discounts, and the benefits from competition are effectively blocked.”
There is increased recognition by policymakers and thought leaders that rebate walls are contributing to the drug affordability problem, Winegarden said, adding that an important action the new Attorney General can take is to examine these practices.
"The COVID-19 vaccine should be a lesson for all of us. Anything that creates a barrier to the marketplace does not help our healthcare system,” said Rob Lapsley, president of the California Business Roundtable, which has urged state leaders to investigate the practice. “Knocking down rebate walls will help ensure patients and providers have access to medicines that are the best at treating patients.”
The growing understanding that anti-competitive practices are increasing patients’ out-of-pocket costs, by potentially thousands of dollars should help fuel the pressure for addressing the rebate wall issue, Winegarden said.
The practice is particularly burdensome for patients facing excessive out-of-pocket costs because they require expensive medicines to treat their conditions.
“This is a financially crushing problem for these people, and a fear for many people that they will fall into this category,” Winegarden said.
For patients requiring an infusion biologic medicine, Winegarden noted that the savings without rebate walls in place could average $3,000 to $4,000, or perhaps as high as $8,000.
“The problem of drug affordability exists because the competitive environment is not serving the interests of patients,” Winegarden said. “The best way to improve drug affordability is to remove anti-competitive regulations and actions, which include reforms to address the rebate wall.”