Revising Medicare drug rebate plan would backfire, hike federal spending, CBO says

An HHS plan to force prescription drug prices down by removing rebates in the Medicare Part D program would actually have the opposite effect and hike federal spending on the program by $177 billion over 10 years, according to a Congressional Budget Office estimate released May 2.

The HHS proposal, released in January, would sharply change the way drugs are paid for in the U.S. Currently, pharmaceutical companies pay pharmacy benefit managers rebates, or discounts, in exchange for favorable placement on a list of drugs covered by health insurance plans.

The proposal seeks to ban these rebates in government insurance programs. Instead, the drugmaker rebates would be given to health plan patients at the pharmacy counter. The goal of the proposal is to force drug prices down.

But banning rebates would not produce the effect HHS intends, according to the CBO.

If the rule is finalized, CBO estimates spending for Medicare would increase by about $170 billion and spending for Medicaid would increase by about $7 billion.

The billions of dollars in additional spending would result from an increase in premiums if discounts are instead given at the point of sale, the CBO said.

"Because the government subsidizes 74.5 percent of the basic beneficiary premium, higher premiums would lead to larger federal subsidies, thus increasing federal spending," the CBO said.

Additionally, greater utilization of prescription drugs by Part D beneficiaries would also increase federal spending.

"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.

Read the full CBO report here.


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