The Trump administration’s proposal to remove safe harbor protection for rebates to health plans or pharmacy benefit managers will cause few problems for the companies, but will likely hurt consumers and the federal government, according to several Wall Street analysts.
Jefferies said eliminating Medicare Part D rebates will likely result in neutral or modestly negative results for PBMs. It will actually lead to a competitive bidding advantage for CVS, Express Scripts and UnitedHealth Group’s Optum.
Meanwhile, Leerink said CVS and Express Scripts already pass through 100% of rebates, so removing those rebates will increase plan premiums.
Targeting PBMs is one way the Trump administration is looking to lower drug costs. Little is known about specifics of the plan, but Food and Drug Administration Commissioner Scott Gottlieb said at the recent Food and Drug Law Institute annual conference that the federal government is looking to change the current safe harbor for drug rebates.
The Trump administration believes the move will improve affordability and competition.
That’s not a belief shared by Jefferies, which said eliminating Medicare Part D rebates will increase premiums. Jefferies said Part D plans owned by companies with captive PBMs have seen faster enrollment growth compared to the average for all Part D plans. The main reason for this was that plans with captive PBMs used scale and the rebates to submit lower Part D bids. That led to lower premiums, Jefferies said.
“We believe that if CMS removes the Rx rebating safe harbor, the Part D plan sponsors with the largest PBMs would lose their rebate-enabled competitive bidding advantage, which could result in slower Part D membership growth or lower Part D margins as companies will have to increase their bids to CMS disproportionately more than competitors or continue to price lower and absorb the associated margin compression,” Jefferies added.
Also, Leerink said commercial plan PBMs have contract clauses that allow them to renegotiate to “keep themselves whole.” That means those plans may be able to avoid the pain of losing the rebates by renegotiating contracts.
Leerink added that proposed mergers involving CVS and Aetna and Cigna and Express Scripts will also lessen the impact of the proposal. “We see the fears around the PBM business model and sell-off as overblown, given the capabilities and scale are clearly value-added, while the proposed mega mergers… move the stand-alone PBM business model slowly to a more end customer incentive aligned integrated model,” Leerink said.
Leerink added that it’s bullish on UnitedHealth Group and Humana since they have Part D, Medicare Advantage Part D and an integrated PBM. They are better able to weather changes.