How Medicare drug price negotiations could impact your clients

By Chelsea Smith

In part one of our series, we discussed how the first two coverage phases of Medicare Part D might be affected by the Inflation Reduction Act’s drug negotiations.

When we last left our discussion, we realized that if Part D remains the same as it is now, the average client won’t see much savings coming their way. They fall about $600 short of reaching the coverage gap, where most of the savings would be found. That was discouraging.

Where’s the beef?

In 2025, a $2,000 annual out-of-pocket cap will be added to Part D. This will be the meat and potatoes of where beneficiaries save money. The Center for Medicare and Medicaid Services estimates about 20% of Part D beneficiaries will reach that $2,000 annual cap going forward. This limit will be beneficial to every Part D enrollee with high drug costs, not just those who take one high-cost drug.

This is true even with the elimination of coinsurance in the catastrophic phase that happened this year. With this year’s elimination, Medicare Part D beneficiaries basically have an out-of-pocket max of $8,000. Once that limit is reached, beneficiaries will not pay anything for their drugs for the rest of the year.

What about the other 80% of Medicare Part D clients?

The other 80% of your Part D clients won’t be left in the dust, though. Some other instances are not guaranteed, but will equal even more savings if they do happen.

Thinking about tier lists, we know each drug is negotiated separately. Some will likely be reduced more than others. And if a drug is reduced far enough, it might fall out of a plan’s specialty tier. Once that happens, these drugs usually will be covered by a fixed copay, which not only should lower the cost, but make the cost more predictable in case your client needs a different dose or if the price wavers.

Let’s say Drug Z is a Tier 5 drug priced at $500 a month. Your client’s plan has a 33% coinsurance for that tier. That leaves him still looking at a $150 a month price tag for his drug. Next year, his drug is named for negotiations and is eventually lowered down to, hypothetically, $400. Cool. Since the drug now costs less, the plan moves it to Tier 4. If the Tier 4 copay is $100 per fill, he saves $50 from where he started. Even cooler.

So that’s another way prices might get lowered for everyone, regardless of coverage phase. The next way switches gears completely, but also will be applicable outside of coverage phases. This time, we must get a bit more of the backstory behind how the process came to be to understand where it is going.

Additional exposure

The Trump administration put back into place a totally separate negotiation process called the rebate rule back in 2020. This rule, according to CMS, allowed premiums to stay lower instead of focusing that price reduction on individual drug transactions. It has been put on pause at this point until the IRA negotiations are over, but it could be a factor in drug prices after the IRA dust settles.

Now this might be where it gets complicated again. Under this rebate rule, drug manufacturers and Medicare Part D sponsors would parley behind closed doors for additional discounts on some medications even after your client walked away with a pill bottle in her hands. Why, you might ask?

Manufacturers are trying to sell their drugs in bulk to Medicare beneficiaries, and the more Part D sponsors can demonstrate themselves as a driving force behind the sale of a drug, the more likely they can get a discount on large quantities sold from that manufacturer. Sponsors get a rebate, drug manufacturers get more sales. The beneficiary is none the wiser.

But how are those rebates figured? Let’s go back to that starting price again. If a drug is priced at, say, $100 per dose, and your client must pay 20% coinsurance, that means they will pay $20 for each dose. Sounds reasonable to them.

But at the end of the business quarter, those Part D sponsors call the manufacturer and remind them how many times the plan footed the bill for that $80. They might also mention that your client wouldn’t have even bought the drug at all if Part D hadn’t footed that $80. Twenty bucks is reasonable, maybe a hundred isn’t.

So, can’t the manufacturer just send some of those profits back? The manufacturer complies, writes a rebate check to the sponsors for $50 for each dose, and calls it a day. Essentially, this drug costs $50 a dose for Part D instead of the original $100. Great.

Hang on though, your client didn’t pay coinsurance on $50, they paid before that amount was settled. She paid $20 instead of the $10 she could have paid if that rebate process happened beforehand. Not a single dollar was saved for your client that day.

Some argue this situation will be less likely to occur simply because the IRA price will start lower. There will not be a rebate for Part D sponsors to negotiate. So once again, this situation is not for sure, but could happen if drugs are negotiated far enough. But these backdoor negotiations are delayed until 2032 anyway, so they might not be affected for some time.

But there are two more layers to our rebate cake. The delay on the rebate rule stopped this process for all drugs, not just IRA-negotiated drugs. The opportunity for any price negotiations outside of the IRA is buried until 2032. So could a medication that didn’t fall into the parameters of the IRA get a rebate? Sure. We'll have to wait until 2032 to find out.

And the last layer: Lower overhead costs are still, well, lower overhead costs. Even if Part D sponsors are the only entity that ends up paying less for these drugs, or even if Part D sponsors and the manufacturer still come to a deal post-sale, that’s still money saved. We can hope the savings will be found in premium costs, copays or coinsurance.

It might not be easy to measure. It might not be “if this, then that.” It might not be huge or fast or satisfying. But it’s something. Your clients will save some money, particularly clients who take one or some of the drugs listed. Or even better: someone who couldn’t take these drugs before due to lack of funds might find themselves able to again.

To be continued…

Chelsea Smith is learning and development specialist with Action Benefits in Southfield, Mich. Contact her at [email protected].