Middlemen take rebates, driving up drug prices

Secret Rebates: Why Patients Pay $600 for Drugs That Cost $300

By Robert Langreth
Bloomberg, October 5, 2016

Behind the scenes, drugmakers gave insurers and benefit managers more than $100 billion a year in rebates and other discounts to reduce the skyrocketing cost of drugs.

No one balks when insurers get rebate checks after they actually paid for a drug. But, increasingly, Americans are forced to pay for medication out of their own pockets -- at least for part of the year.

That’s because more are enrolling in insurance plans with deductibles as high as $4,000 for a family. In such cases, insurers receive the rebates even though they haven’t paid a dime.

Eight pharmaceutical companies contacted by Bloomberg, including Novo Nordisk A/S, which makes NovoLog; Merck & Co., Pfizer Inc. and EpiPen maker Mylan NV, said their contracts with benefit managers and insurers generally require rebates be paid to them on all prescriptions, even when the patients pay the full cost because of high deductibles.

On a $600 prescription, “if the patient has a high-deductible plan, then the insurer could pocket the $300 rebate and not share it with the patient,” says Adam Fein, president of Pembroke Consulting, which advises drugmakers on sales and distribution.

But why not break up the rebate checks and send the cash back to the patients who paid for the drugs? Representatives of corporate health plans say it would be impractical to do so because they get the money months after employees bought the drugs.

Says Laurel Pickering, chief executive of the Northeast Business Group on Health, a coalition of large employers: “It would be very difficult to figure out how to administer that.”



By Don McCanne, M.D.

Drug rebates go to insurers. How does this work? Well, let’s go through this step by step.

1. The patient buys a health insurance plan with a high deductible - a plan that provides drug benefits.

2. The patient is prescribed a $600 medication before having met the deductible.

3. The patient purchases the drug at the pharmacy for the retail price of $600.

4. The insurance company (or pharmacy benefit manager) has previously made a confidential deal with the drug manufacturer that a 50% rebate will be paid to the insurer in exchange for including that drug in the formulary of drugs that are approved for coverage under the plan.

5. The 50% rebate - $300 - is paid to the insurer who keeps it.

6. None of the $600 is refunded to the patient.

7. The pharmaceutical firms jack up the retail prices of their drugs to pay for the rebates and to increase profits.

8. Net result:

  • The insurance provided no benefit to the patient.
  • The insurer paid out nothing.
  • The patient paid $600 for a drug that had a negotiated price of $300.
  • The insurer pocketed $300 which rightfully belonged to the patient.
  • We all pay more for drugs because of these secret deals.

The insurers may argue that they should be rewarded for negotiating the drug discount for the patient. But scooping up the entire discount and running away with it?

Will somebody please explain why our policymakers continue to demand that we maintain the middleman role for the private insurers in our health care financing system? It’s a great deal for the insurer, but wasn’t reform supposed to be about the patient?