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Are Rebates to Blame for Drug Price Increases?

Pharmacy benefit managers use a complex and obscure system of rebates. Drug manufacturers claim these are the true culprits behind rising drug prices.

Many drug companies have raised prices over the last few months, but they say it’s not to improve their bottom line. Indeed, a number of pharmaceutical manufacturers maintain that they are raising prices because pharmacy benefit managers or PBMs force drug companies to pay bigger rebates. The PBMS are middlemen between manufacturers, insurance companies and pharmacies. They often negotiate secret deals that are hard to evaluate.

HHS Suggests Changes to Rebates:

The US Department of Health and Human Services is proposing a rule that could change the way PBMs do business. The head of HHS, Alex Azar, is a former pharma executive. To begin with, he said the proposal would eliminate rebates. It would also change how drugs are priced at the pharmacy counter. HHS intends for patients to benefit from discounts created by pharmacy rebates. Currently, in most instances patients or insurers pay higher prices, even for essential drugs such as insulin.

Figuring out who is paying what can be extremely difficult. The revised HHS rules aim for greater transparency.

A commenter writing for Forbes recommends a completely different rule change: allow Medicare to negotiate prices with the companies. Congress struck a deal forbidding such bargains when it passed the Part D legislation that covers prescription drugs for seniors. In the current climate, legislators might not be willing to revisit this provision, however.

PhRMA Welcomes the Proposed Rule Changes:

The Pharmaceutical Care Management Association, a trade group for PBMs, maintains that reducing or eliminating rebates would make drugs pricier for consumers. The manufacturers’ trade group, PhRMA, is in favor of the proposal. Whether consumers will truly benefit remains to be seen.

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About the Author
Terry Graedon, PhD, is a medical anthropologist and co-host of The People’s Pharmacy radio show, co-author of The People’s Pharmacy syndicated newspaper columns and numerous books, and co-founder of The People’s Pharmacy website. Terry taught in the Duke University School of Nursing and was an adjunct assistant professor in the Department of Anthropology. She is a Fellow of the Society of Applied Anthropology. Terry is one of the country's leading authorities on the science behind folk remedies..
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