Rebates

[standup]

In this morning's earnings call, Pfizer (PFE +3%) chief Ian Read said he believes the Trump administration plans to eliminate rebates on prescription drug purchases, although he has no clear idea when such a policy would be implemented.

Earlier this month, the administration proposed a change that would trim current protections that allow drug makers to kick back monies to insurers and pharmacy benefit managers (PBMs) in exchange for preferential treatment on formularies.

[boca1girl]

This could be great news for all drug consumers.

From SA Wall Street Breakfast: Pfizer CEO Ian Read believes the Trump administration intends to stop the practice of allowing rebates on prescription drug purchases. That suggests U.S. drug pricing reforms may focus on middlemen rather than drugmakers, keeping price hikes in line with health care inflation. Pfizer (NYSE:PFE) currently receives around 58% of its list prices on drugs, meaning about 40% goes to middlemen.

The real question would be what happens to the cash price or the co-pay that the consumer has to pay. It is hard to believe that all the money associated with rebates (40%) would go to reduce drug costs to the consumer. This would be a “god send” for Afrezza in my opinion. The monopoly power that BP’s currently hold would be broken because of the exclusivity deals cut with the rebates.

[agedhippie]

Aug 1, 2018 7:42:38 GMT -5 boca1girl said:

The real question would be what happens to the cash price or the co-pay that the consumer has to pay. It is hard to believe that all the money associated with rebates (40%) would go to reduce drug costs to the consumer. This would be a “god send” for Afrezza in my opinion. The monopoly power that BP’s currently hold would be broken because of the exclusivity deals cut with the rebates.

I think the result would be that the manufacturers would cut their prices to the real price. They could still discount but the PBM would get cut out. I think PBMs could end up needing a new business model, or at least losing a revenue stream. I am not exactly heartbroken about that.

[mnholdem]

Long term, this could have an effect on insurance premiums as well. Hard to say whether good or bad, since insurers will be losing rebate revenues, they may elect to make up for the loss by raising premium prices. Drugs are only one part of what healthcare companies cover, but rebates have been a cash cow for many years.

However the new business model looks after the feds make changes, you can be certain that the insurers will find a loophole or two to make money. I think many would luv to see the PBMs cut out of the system, but BPs would lose preferential treatment for their drugs over the competitors.

[agedhippie]

Aug 1, 2018 8:40:01 GMT -5 mnholdem said:

Long term, this could have an effect on insurance premiums as well. Hard to say whether good or bad, since insurers will be losing rebate revenues, they may elect to make up for the loss by raising premium prices. Drugs are only one part of what healthcare companies cover, but rebates have been a cash cow for many years.

However the new business model looks after the feds make changes, you can be certain that the insurers will find a loophole or two to make money. I think many would luv to see the PBMs cut out of the system, but BPs would lose preferential treatment for their drugs over the competitors.

I think a side effect of this would be a race to the bottom on list prices. If you cannot promote your drugs through rebates then it is going to have to be done by price. The PBM will ask for a a discount, and the insurer is going to ask for a share of that discount. Rebates will become discounts, so there is a bigger discount if you take more product lines.

I suspect the outcome is going to be that pricing becomes a lot more transparent. Lilly and Sanofi already have discount cards for uninsured and high deductible policies that halves the list price. Expect to see more of that. I can see PBMs moving to a cost plus model.