This analysis is part of the USC-Brookings Schaeffer Initiative for Health Policy, which is a partnership between Economic Studies at Brookings and the University of Southern California Schaeffer Center for Health Policy & Economics. The Initiative aims to inform the national health care debate with rigorous, evidence-based analysis leading to practical recommendations using the collaborative strengths of USC and Brookings.
The Medicare Part D program allows plans to negotiate rebates directly with manufacturers, often in exchange for preferential placement on the plan’s formulary. These rebates have grown from about 10 percent of Part D spending in 2007 to about 22 percent in 2017. While these rebates help keep Part D premiums low, they do so at a cost. Because of how rebates are implemented in Part D, patient cost- sharing is based on the list price, not the net price after rebates and other discounts. The result is that the patient does not share in the negotiated savings at the point of sale.
We modeled a Part D policy change that would base beneficiary cost-sharing on net, rather than list, price for patients who do not receive low-income subsidies. We find that such a policy change would reduce out-of-pocket spending for about 47 percent of these beneficiaries. Approximately 20 percent would save more than $100 over the year; and about one percent would save more than $1,000. Moreover, we find that 36 percent fewer of these beneficiaries would reach catastrophic coverage, resulting in federal reinsurance savings of about 19 percent. These results indicate that tying cost- sharing to net price would provide meaningful financial relief to many Part D beneficiaries. Read the full paper here.