How Do Rebates Impact Part D Spending for Plans, Beneficiaries?

While rebates may lower Medicare Part D spending for plan sponsors, they do not reduce drug costs for Medicare beneficiaries, a study conducted by the US Government Accountability Office (GAO) found.

Medicare Part D drug spending surpassed $200 billion in 2021, according to GAO. Part D plan sponsors can negotiate rebates with drug manufacturers who want access to the plan’s formulary.

To understand how rebates impact Part D spending and beneficiary access to drugs, GAO examined rebate expenditures for Part D drugs in 2021, reviewed CMS documentation, and spoke to CMS officials, plan sponsors, and drug manufacturers.

GAO found that plan sponsors received $48.6 billion in rebates from drug companies in 2021. Endocrine metabolic agents, blood modifiers, and respiratory agents accounted for 73 percent of rebates.

Beneficiary use of drugs with high rebates impacted plan sponsors, beneficiaries, and Medicare differently. Plan sponsor payments for drugs with a higher gross cost may fall to an amount lower than that for a competing drug with a lower price. In turn, Medicare drug spending would decline, as plan payments are based on drug costs after rebates.

However, rebates do not reduce individual beneficiary payments for drugs since they are based on the gross cost of the drug before accounting for rebates. Therefore, drugs with higher gross costs typically lead to higher beneficiary payments relative to payments for drugs with lower gross costs.

After accounting for rebates, the GAO study found that payments by beneficiaries were higher than plan sponsor payments for 79 of the 100 drugs receiving the most rebates. For these drugs, beneficiary payments totaled $21 billion, while plan sponsor spending totaled $5.3 billion.

CMS officials said they use drug rebate data to help ensure plan sponsor payments are accurate but do not use the data to oversee plan formularies. The agency conducts annual clinical formulary reviews that assess if formularies include commonly prescribed drug classes.

According to GAO, rebates may influence formulary design in ways that could impact beneficiary access to drugs. However, CMS officials said that evaluating rebate information is unnecessary and the agency is statutorily prohibited from interfering with drug manufacturer and plan sponsor negotiations.

GAO recommended that CMS monitor the impacts of rebates on plan sponsor formulary design and beneficiary spending, which would not require CMS to interfere with negotiations. This monitoring could determine if rebate practices are likely to discourage enrollment by certain beneficiaries.

Additionally, monitoring rebates would be helpful as Inflation Reduction Act provisions take effect, which will change plan sponsor, beneficiary, and Medicare drug spending responsibility and could impact formulary design and rebates.

HHS did not agree with GAO’s recommendation to increase oversight of rebate and expenditure data.