shows a woman's hand holding pill bottle, with SHIIP client in the background
Senior PharmAssist counselor Marilyn Disco checks a client's medications. Photo credit: Jim Colman, Senior PharmAssist

By Mark Tosczak

If you get your health insurance from Aetna or UnitedHealthcare, you might — with an emphasis on “might” — find some of your prescriptions are cheaper at the drug store next year.

Both companies have announced in the last few weeks that in 2019 they will pass on any rebates they receive from drug manufacturers directly to consumers. But the new policy won’t benefit all patients.

For starters, if you’re covered by a Blue Cross and Blue Shield of North Carolina plan, you’re out of luck. Blue Cross, which last year received $227.4 million in rebates from drug companies, said it already uses those funds to reduce the costs of premiums and plans to continue to do so.

“We pass along 100 percent of our drug rebates to all customers in the form of lower premiums, the same way all customers share the costs of those expensive drugs,” Blue Cross spokesman Austin Vevurka said in a statement.

But even if UnitedHealthcare or Aetna is your insurer, there’s no guarantee you’ll see a rebate.

First, the policy change only applies to what insurance companies call fully insured plans; these plans cover millions of people in North Carolina, but not everyone.

UnitedHealthcare said it covers about 1.4 million North Carolinians in fully insured plans. Blue Cross covers another 1.5 million. An Aetna spokesperson said he couldn’t provide state-specific numbers, but the company has a smaller market share in North Carolina than UnitedHealthcare and Blue Cross Blue Shield.

The rebate policies also don’t apply to plans run by large employers nor do they apply to government-sponsored plans, such as Medicare or Medicaid.

On top of that, how much the drug rebates are worth might vary widely. Rebates are often negotiated for individual drugs between drug makers and all the middlemen between them and the patient.

‘Devil in the details’

A 2016 Kaiser Family Foundation study found that average annual out-of-pocket prescription drug costs were $144 in 2014 — just $12 a month. But the same study found that the proportion of people spending more than $1,000 per year at the pharmacy grew from 1 percent in 2004 to 2.8 percent in 2014.

For patients spending thousands of dollars a year out of pocket on medicine, rebates might represent substantial savings — but other changes to pharmacy benefits could increase costs for some patients. And any benefits from rebates will depend on the details in the secret contracts pharmaceutical companies and those middlemen negotiate.

People who need very expensive drugs, such as multiple sclerosis patients with medicines costing as much as $85,000 per year, have a lot at stake when it comes to drug prices.

“Just getting that rebate pass-through, is that going to make a drug magically affordable?” asked Bari Talente, executive vice president of advocacy at the National Multiple Sclerosis Society. “Probably not for drugs that are this expensive, but every bit helps.”

Experts on drug pricing say our current prescription drug pricing system, which usually involves multiple companies that stand between patients and drug makers, is opaque, difficult to understand, and governed by secret contracts.

“If ever there were ever a devil-in-the-details thing, this is it,” said Professor Norman V. Carroll, a pharmacoeconomics professor at Virginia Commonwealth University’s School of Pharmacy.

“Because of the way contracts are written, how much of what you and I would call a rebate is recognized as a rebate, and how much is labeled as something other than a rebate and kept by the [pharmacy benefit manager]” is unclear.

It’s complicated

Drug purchasing can flow through several companies, Carroll said. “I think it’s probably a pretty good bet that everywhere a rebate stops, someone’s taking a percentage of it.”

Drug manufacturers negotiate prices with both insurers and companies known as pharmacy benefit managers. PBMs act as middlemen, getting paid to manage payments and negotiate drug prices so insurance companies can provide drug benefits to patients. PBMs may negotiate discounts off their drugs’ “list prices,” but not all of those discounts are labeled as “rebates” that then get passed on to consumers. Some PBMs are owned by the insurance companies they serve.

The PBMs also negotiate their prices and fees with networks of pharmacies. Finally, patients pay the final price at the pharmacy based on their insurance plans.

Sometimes that price is a co-pay, typically set by what coverage “tier” a drug is placed on in a health insurance plan.

Sometimes what comes out of a patient’s pocket is labeled “co-insurance” — usually a percentage of the cost of the drug. So-called specialty drugs, including expensive medicines used to treat multiple sclerosis, rheumatoid arthritis and cancer, often require a co-insurance payment from patients, often much more than a flat co-pay.

“Insurance is supposed to spread the cost so that people with extreme expenses don’t get penalized,” Carroll says. “In this case, they’re putting the big burden of payment on people who have the worst health.”

Other changes

Other details in a drug benefits plan can be devilish, too. For example, drug makers sometimes make coupons available to patients that lower the out-of-pocket cost of a drug. These coupons are intended to induce patients to use expensive drugs they might otherwise avoid because of the cost. Even after co-pays and co-insurance, insurers still often pay the bulk of a drug’s cost. But by giving patients those coupons, drug makers can boost their overall revenues.

For many UnitedHealthcare patients, though, another recent policy change means coupons will no longer count toward a patient’s deductible, which means that patients could end up with higher out-of-pocket costs when it’s all said and done.

“Right now, I think what we see is there are a lot of perverse incentives in the system for higher prices,” Talente said. “A lot of stakeholders across the system benefit from higher prices, but we know the patient is hurt by that.”

Insurers point to pharmaceutical companies, saying the problem comes from the high prices they are charging for drugs.  And insurers also say those prices have increased dramatically in recent years.

“Adjusting for membership changes, over the past three years drug manufacturers have increased costs for our customers by $360 million, but only increased rebates by $130 million – pocketing $230 million of their costs increases,” said Blue Cross’ Vevurka.

MS drugs — even those that have been around for many years — have seen some big increases.

Betaseron, for example, first went on the market in 1993 at an annual cost of $11,532, according to researchers at the Oregon Health & Science University. By 2016, its price had climbed to $82,884.

Blue Cross NC says that when it negotiates discounts off drug list prices, those savings go to patients in the form of lower co-insurance. It’s uncertain, though, if that’s true for all insurers.

“Very few, if any [patients] are paying $80,000 for a medication, but we don’t know what the insurance is paying because that’s all private contract negotiations,” Talente said. “The person with MS is paying a co-insurance based off something which is probably the list price, and so at that point they’re not benefiting from the negotiated price.”

There is no simple answer, Talente said.

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Mark Tosczak has worked as a writer and communications professional for more than 20 years, including stints as a newspaper reporter and editor, think tank communications director, marketing agency vice...