Payers receive confidential rebates from pharmaceutical manufacturers, which allow for lower premiums but are not typically reflected in drugs’ list prices or patients’ out-of-pocket costs. In November 2020, the US Department of Health and Human Services published a final rule requiring rebates in Medicare Part D to be “passed through” to point-of-sale prices instead of being retained by plans.1 Implementation has been delayed owing to concerns about projected increases in beneficiary premiums and federal spending.2,3 Unlike other drug classes (eg, hepatitis C drugs), cancer drugs are both highly costly and often have small or no rebates in Part D (averaging 2% overall4), in part because Part D plans are required to cover them.5 In this cross-sectional study, we examined out-of-pocket costs with and without rebate pass-through for cancer drugs in Part D.
We obtained total Part D and per-beneficiary spending for brand-name cancer drugs from Medicare’s 2019 Drug Spending database. We excluded drugs primarily covered by Part B (ie, physician-administered products), biosimilars, and drugs with expenditures less than $1 million. We obtained drug-level average 2019 rebate estimates from SSR Health6 and adjusted them for manufacturers’ coverage gap discounts using 2019 utilization and an average low-income subsidy fraction of 25%. Because this study used publicly available and deidentified data, institutional review board approval was not required.
For each drug, we projected annual out-of-pocket costs with and without rebate pass-through under the standard 2021 benefit: $445 deductible, 25% coinsurance in initial coverage phase (up to $4130) and coverage gap, and catastrophic coverage with 5% coinsurance after out-of-pocket costs (including coverage gap discounts) exceed $6550. In the base case, consistent with the final rule,1 we assumed that 100% of rebates would be passed through to adjust point-of-sale prices; we further assumed that drugs without rebate estimates (31 [40%]) had no rebate in Part D, in line with prior reports.4,5 We conducted sensitivity analyses imputing the spending-weighted class-average rebate (among drugs with rebate data) for products without rebate data, assuming that 15% of rebates would not be passed through by manufacturers (as anticipated by some analysts3), and assuming that beneficiary spending was entirely in the catastrophic phase. Statistical analyses were conducted using Stata, version 12.0 (StataCorp).
Medicare Part D spending for the 78 cancer drugs studied was $19.1 billion in 2019, accounting for 93.3% of total Part D cancer drug spending. The median gross (prerebate) annual drug cost was $56 688. The spending-weighted average rebate among drugs with rebate data was 9.5%.
The mean annual out-of-pocket cost for the included cancer drugs was $5285. If all rebates were passed through to point-of-sale price reductions, the mean estimated out-of-pocket cost was $5064, for a mean (%) per beneficiary decrease of $221 (4.2%) compared with no policy change (Table). The magnitude of estimated decreases was largest for more costly drugs. In sensitivity analyses, estimated decreases in out-of-pocket costs ranged from 3% to 6% (Figure).
Results of this cross-sectional study demonstrated that out-of-pocket costs for brand-name cancer drugs under Medicare Part D would be an estimated 3% to 6% lower under a regulation requiring rebates to be reflected in point-of-sale prices. The rule’s projected savings for beneficiaries would be reduced if Part D premiums increase, as is anticipated by Medicare,1,3 and further attenuated if manufacturers fail to pass through all rebates to point-of-sale prices. A limitation of this study was using the standard benefit; however, actual plan designs must be actuarially equivalent to the standard benefit. Because rebate estimates were not available for a minority of drugs, we conducted a sensitivity analysis applying a class-average rebate level; this may overestimate possible savings (average rebate of 9.5% vs 2% previously reported4).
Medicare beneficiaries with cancer face some of the highest out-of-pocket costs for prescription drugs, which would be minimally alleviated by a rule eliminating rebates. Policy makers should explore caps on patient cost sharing and other benefit redesign to more effectively address the high out-of-pocket costs for cancer drugs.
Accepted for Publication: August 25, 2021.
Published Online: November 11, 2021. doi:10.1001/jamaoncol.2021.5433
Corresponding Author: Stacie B. Dusetzina, PhD, Vanderbilt University Medical Center, 2525 West End Ave, Ste 1200, Nashville, TN 37203 (s.dusetzina@vanderbilt.edu).
Author Contributions: Mr Hwang had full access to all of the data in the study and takes responsibility for the integrity of the data and the accuracy of the data analysis.
Concept and design: Hwang, Keating, Dusetzina.
Acquisition, analysis, or interpretation of data: All authors.
Drafting of the manuscript: Hwang.
Critical revision of the manuscript for important intellectual content: All authors.
Statistical analysis: Hwang, Dusetzina.
Obtained funding: Huskamp, Dusetzina.
Administrative, technical, or material support: Qin.
Supervision: Dusetzina.
Conflict of Interest Disclosures: Dr Keating reported grants from the National Cancer Institute and received funding from the Centers for Medicare & Medicaid Services outside the submitted work. Prof Huskamp reported grants from the Leukemia & Lymphoma Society during the conduct of the study. Dr Dusetzina reported grants from the National Cancer Institute (2P30CA068485) during the conduct of the study; grants from the Robert Wood Johnson Foundation and the Leukemia & Lymphoma Society, as well as personal fees from the Institute for Clinical and Economic Review, West Health, and the National Academy for State Health Policy outside the submitted work; and serving on the Medicare Payment Advisory Commission. No other disclosures were reported.
Funding/Support: This work was supported by grants from Arnold Ventures and the Commonwealth Fund.
Role of the Funder/Sponsor: The funders had no role in the design and conduct of the study; collection, management, analysis, and interpretation of the data; preparation, review, or approval of the manuscript; and decision to submit the manuscript for publication.
Disclaimer: The views presented are those of the authors and do not reflect those of the Medicare Payment Advisory Commission.
4.Medicare Part D: use of pharmacy benefit managers and efforts to manage drug expenditures and utilization. Government Accountability Office. August 13, 2019. Accessed October 12, 2021.
http://gao.gov/products/gao-19-498