As of January 1, 2024, the American Rescue Plan Act (ARPA) fundamentally altered the landscape of Medicaid rebates by lifting the cap on the total amount of rebates that Medicaid could collect from manufacturers for drugs whose prices increase significantly over time. With this backdrop, drug manufacturers have been adjusting their strategies, notably through price cuts for essential medications and the discontinuation of certain products. For drug manufacturers, navigating the complexities of dealing with PBMs, especially in the wake of the ARPA, presents both challenges and opportunities.
The Dominance of PBMs and the “Gross-to-Net Bubble”
Pharmacy Benefit Managers (PBMs) like CVS Caremark, Express Scripts, and OptumRx command approximately 80% of the prescription benefits market in the United States. These entities are intricately linked with the healthcare system, notably through vertical integration with rebate aggregators such as Ascent Health Services (owned by Cigna-Express Scripts), Emisar Pharma Services and Coalition for Advanced Pharmacy Services (owned by UnitedHealth Group-OptumRx), and Zinc Health Services (owned by CVS Health-Caremark). This vertical integration has significant implications for drug manufacturers, particularly in light of the “gross-to-net bubble.” In 2023, the disparity between the list prices of brand-name drugs and their net prices after accounting for rebates and other reductions exceeded $250 billion. A considerable portion of this discrepancy is believed to not be properly returned to Plan Sponsors, raising questions about the equitable distribution of rebate savings. In that vein, Ohio Attorney General Dave Yost sued Express Scripts, Humana and other companies, accusing them of violating state antitrust law and the Ohio Deceptive Practices Act. Specifically, the complaint explains that, even though ESI’ agreements with Plan Sponsors promised 100% full pass-through of rebates from manufacturers, ESI evaded this contractual requirement by renaming the rebate payments received by Ascent as “administrative service fees,” “inflation fees,” or “service fees.” The amount of these “fees” received by Ascent is not disclosed to plan sponsors. The table below shows the vertical integration headed by the PBMs.
Implications and Challenges of the American Rescue Plan Act
The ARPA, with its provisions impacting the pharmaceutical industry, notably the elimination of the Medicaid prescription drug rebate cap, introduces new challenges and considerations for manufacturers. This legislative change has led to increased financial pressures on manufacturers, with PBMs potentially leveraging this situation to secure more advantageous rebate contracts, thereby exacerbating the gross-to-net bubble. In fact, the ARPA will have a major impact on the brand drugs whose rebates are already capped at AMP or drugs with a high list price and generate a large rebate.
Manufacturers now face heightened challenges, including ensuring compliance with regulations prohibiting rebates on government claims (Medicare, Medicaid, Tricare) and 340B claims. The issue of rebate savings not being fully passed on to Plan Sponsors, and the retention of a substantial portion of the gross-to-net bubble by PBM-owned rebate aggregators, underscores the need for transparency and fairness in the rebate system.
Conclusion
The pharmaceutical industry is at a pivotal juncture, with regulatory changes and strategic responses by PBMs and manufacturers reshaping the landscape. Understanding and effectively managing the complex dynamics of the rebate system and PBM relationships is crucial. Frier Levitt is dedicated to guiding manufacturers through these challenges, ensuring a proactive and informed approach to securing equitable and compliant rebate agreements.
We encourage manufacturers to engage with Frier Levitt for a comprehensive review of their PBM agreements and rebate management processes. In an evolving regulatory environment, bolstered by changes such as those introduced by the ARPA, having a knowledgeable legal partner is invaluable. Our goal is to ensure that manufacturers navigate these changes effectively, optimizing their strategies to ensure compliance and financial sustainability.
How Frier Levitt Can Assist
Our services include auditing rebate invoices, recovering overpaid rebates, negotiating and drafting rebate agreements, and pursuing legal action to safeguard manufacturers’ interests. Our deep understanding of the PBM landscape, coupled with our expertise in navigating the implications of the ARPA, makes us a critical ally for manufacturers seeking to navigate these complexities. If you have questions or need help with manufacturer rebates retained by PBMs, contact us to speak to an attorney.
