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Medicare Part D: CMS Should Monitor Effects of Rebates on Plan Formularies and Beneficiary Spending

GAO-23-105270 Published: Sep 05, 2023. Publicly Released: Sep 05, 2023.
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Fast Facts

Medicare beneficiaries can have prescription drugs covered via private insurance plans participating in the Medicare Part D program. Premiums and drug costs vary by plan, as do plans' lists of covered drugs—known as "formularies."

Drug makers may give plans rebates in exchange for preferred placement over competitors on formularies. The rebates may lower plan premiums, but they don't reduce beneficiaries' payments for the drugs.

We found rebates largely went to a small number of drugs, and plans paid less for highly rebated drugs than beneficiaries did.

We recommended that Medicare monitor how rebates affect formularies, beneficiaries, and more.

An image of prescription drugs on a white table.

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Highlights

What GAO Found

GAO found plan sponsors—private companies that provide voluntary Medicare Part D prescription drug coverage—received $48.6 billion in rebates from drug manufacturers in 2021. Three therapeutic drug classes accounted for 73 percent of rebates: (1) endocrine metabolic agents, including antidiabetic drugs; (2) blood modifiers, including anti-stroke drugs; and (3) respiratory agents, including anti-asthma drugs.

Beneficiary use of highly rebated drugs had different spending implications for plan sponsors, beneficiaries, and Medicare. In general, rebates may reduce plan sponsor payments for drugs with a higher gross cost to an amount lower than the payment for a competing drug with a lower cost. This may lower Medicare drug spending, as its plan sponsor payments are based on drug costs after rebates. However, rebates do not lower individual beneficiary payments for drugs, as these are based on the gross cost of the drug before accounting for rebates. Thus drugs with higher gross costs generally result in higher beneficiary payments relative to payments for competing drugs with lower gross costs. GAO found payments by beneficiaries were more than plan sponsor payments, after accounting for rebates, for 79 of the 100 drugs receiving the most rebates.

Medicare Part D Expenditures by Beneficiaries and Plan Sponsors, after Rebates, for the 79 Highest-Rebated Drugs Where Beneficiaries Paid More than Plan Sponsors, 2021

Medicare Part D Expenditures by Beneficiaries and Plan Sponsors, after Rebates, for the 79 Highest-Rebated Drugs Where Beneficiaries Paid More than Plan Sponsors, 2021

The Centers for Medicare & Medicaid Services (CMS) uses drug rebate data to help ensure its plan sponsor payments are accurate, but CMS officials stated they do not use this data in its oversight of plan formularies. CMS conducts an annual clinical formulary review, which includes reviewing if formularies include commonly prescribed drug classes. GAO found that rebates may influence formulary design in ways that could affect beneficiary access for certain drugs. CMS officials told GAO that an evaluation of rebate information is unnecessary given its clinical formulary review, and that CMS is statutorily prohibited from interfering with drug manufacturer and plan sponsor negotiations. However, monitoring rebate and expenditure data would not require CMS to interfere with negotiations between plan sponsors and manufacturers, and it could provide CMS and Congress insight on the extent to which rebates' influence on formularies could discourage enrollment of certain beneficiaries. Such monitoring of rebates will be particularly important as the agency implements the provisions of the Inflation Reduction Act of 2022, which will change Part D plan sponsor, beneficiary, and Medicare drug spending responsibility and may affect formulary design and rebates.

Why GAO Did This Study

Medicare Part D drug expenditures exceeded $200 billion in 2021. Part D plan sponsors may negotiate rebates from drug manufacturers, where manufacturers offer payments to sponsors in exchange for access to a plan's formulary. Manufacturers may offer higher rebates in exchange for lower beneficiary cost-sharing or facing fewer competitors. Policymakers have sought better understanding of rebates' effects on Part D spending and beneficiary access.

GAO was asked to examine rebates in the Part D program. This report, among other objectives, describes (1) rebate and expenditure information for Part D drugs and (2) implications of rebates on plan sponsors and beneficiaries. GAO also assessed how CMS considers rebate data in its oversight of Part D formularies.

GAO analyzed CMS drug expenditure and rebate data for Part D drugs in 2021 (the data most recently available at the time of our analysis); reviewed CMS documentation; and spoke with CMS officials, plan sponsors, and manufacturers.

Recommendations

The Administrator of CMS should monitor the effect of rebates on plan sponsor formulary design and on Medicare and beneficiary spending to assess whether rebate practices are likely to substantially discourage enrollment by certain beneficiaries. The Department of Health and Human Services did not concur with GAO's recommendation. GAO believes the recommendation could help ensure compliance with Part D requirements.

Recommendations for Executive Action

Agency Affected Recommendation Status
Centers for Medicare & Medicaid Services The Administrator of CMS should monitor the effect of rebates on plan sponsor formulary design and on Medicare and beneficiary spending to assess whether rebate practices are likely to substantially discourage enrollment by certain beneficiaries.
Open
HHS did not concur with this recommendation and stated in March 2024 that it considers it closed. HHS stated it already reviews Part D plan formularies to ensure their compliance with Part D requirements and does not believe it is necessary to review expenditure or rebate information. HHS also added that an analysis would not reflect the current changes to the Part D program required by the Inflation Reduction Act of 2022. GAO continues to believe that rebate practices may influence formulary design in ways that could adversely affect beneficiary access for certain Part D drugs and may not be identified by a clinical formulary review. Further, because drugs receiving the highest rebates were concentrated in three therapeutic classes, these rebate and formulary practices can particularly affect certain beneficiaries with chronic conditions treated by drugs in these classes (e.g., diabetes and chronic obstructive pulmonary disease). CMS's monitoring of the effects of rebates using available rebate information could provide CMS, Congress, and others with increased visibility into the extent to which rebate and formulary practices are likely to substantially discourage enrollment of certain beneficiaries. We believe monitoring rebate information in light of changes required by the Inflation Reduction Act of 2022 could help the agency ensure formulary practices moving forward are unlikely to discourage enrollment of certain beneficiaries. CMS's monitoring could be used both to identify patterns of interest and tailored to account for program changes. We therefore maintain that our recommendation to CMS could help ensure compliance with Part D requirements.

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Topics

BeneficiariesBiologicsCompliance oversightDrug pricesDrugsFederal spendingGeneric drugsLow-income subsidyMarket competitionMedicaid servicesMedicarePharmacyPharmacy benefit managersPrescription drugsUtilization management