Assessment of Out-of-Pocket Costs With Rebate Pass-through for Brand-name Cancer Drugs Under Medicare Part D

Abstract

This cross-sectional study examines patients’ out-of-pocket costs with and without rebate pass-through to point-of-sale prices for cancer drugs under Medicare Part D.

Payers receive confidential rebates from pharmaceutical manufacturers, which allow for lower premiums but are not typically reflected in drugs’ list prices or patients’ out-of-pocket costs. In November 2020, the US Department of Health and Human Services published a final rule requiring rebates in Medicare Part D to be “passed through” to point-of-sale prices instead of being retained by plans.¹ Implementation has been delayed owing to concerns about projected increases in beneficiary premiums and federal spending.^2,3 Unlike other drug classes (eg, hepatitis C drugs), cancer drugs are both highly costly and often have small or no rebates in Part D (averaging 2% overall⁴), in part because Part D plans are required to cover them.⁵ In this cross-sectional study, we examined out-of-pocket costs with and without rebate pass-through for cancer drugs in Part D.

Methods

We obtained total Part D and per-beneficiary spending for brand-name cancer drugs from Medicare’s 2019 Drug Spending database. We excluded drugs primarily covered by Part B (ie, physician-administered products), biosimilars, and drugs with expenditures less than $1 million. We obtained drug-level average 2019 rebate estimates from SSR Health⁶ and adjusted them for manufacturers’ coverage gap discounts using 2019 utilization and an average low-income subsidy fraction of 25%. Because this study used publicly available and deidentified data, institutional review board approval was not required.

For each drug, we projected annual out-of-pocket costs with and without rebate pass-through under the standard 2021 benefit: $445 deductible, 25% coinsurance in initial coverage phase (up to $4130) and coverage gap, and catastrophic coverage with 5% coinsurance after out-of-pocket costs (including coverage gap discounts) exceed $6550. In the base case, consistent with the final rule,¹ we assumed that 100% of rebates would be passed through to adjust point-of-sale prices; we further assumed that drugs without rebate estimates (31 [40%]) had no rebate in Part D, in line with prior reports.^4,5 We conducted sensitivity analyses imputing the spending-weighted class-average rebate (among drugs with rebate data) for products without rebate data, assuming that 15% of rebates would not be passed through by manufacturers (as anticipated by some analysts³), and assuming that beneficiary spending was entirely in the catastrophic phase. Statistical analyses were conducted using Stata, version 12.0 (StataCorp).

Results

Medicare Part D spending for the 78 cancer drugs studied was $19.1 billion in 2019, accounting for 93.3% of total Part D cancer drug spending. The median gross (prerebate) annual drug cost was $56 688. The spending-weighted average rebate among drugs with rebate data was 9.5%.

The mean annual out-of-pocket cost for the included cancer drugs was $5285. If all rebates were passed through to point-of-sale price reductions, the mean estimated out-of-pocket cost was $5064, for a mean (%) per beneficiary decrease of $221 (4.2%) compared with no policy change (Table). The magnitude of estimated decreases was largest for more costly drugs. In sensitivity analyses, estimated decreases in out-of-pocket costs ranged from 3% to 6% (Figure).

Table. Estimated Change in Annual Out-of-Pocket (OOP) Costs in Medicare Part D for Cancer Drugs With Rebate Pass-through.

Characteristic	Drugs, No. (%)	Total 2019 spending, $, in millions (%)a	Estimated annual Medicare Part D beneficiary OOP costs with and without rebate pass-through, $
			Current estimated median OOP cost (IQR)	Current estimated mean OOP cost without pass-through	Mean OOP cost with rebate pass-through	Estimated change in mean OOP cost (%)
All included brand-name Part D cancer drugs	78 (100)	19 140 (100)	5085 (4304-6128)	5285	5064	–221 (4.2)
Indication
Solid tumors	52 (66.7)	7779 (40.6)	5055 (4315-5541)	5040	4820	–220 (4.4)
Hematologic cancers	26 (33.3)	11 361 (59.4)	5429 (4330-7019)	5776	5552	–223 (3.9)
Gross annual cost of therapy
>$50 000	50 (64.1)	17 965 (93.9)	5549 (5185-6847)	6034	5745	–289 (4.8)
≤$50 000	28 (35.9)	1176 (6.1)	4141 (3750-4320)	3948	3848	–100 (2.5)

^a Data on 2019 spending and annual costs were obtained from the Centers for Medicare & Medicaid Services’ 2019 Drug Spending dashboard, and information on each cancer drug’s approved indications was obtained from the US Food and Drug Administration’s public labeling database. Out-of-pocket costs were estimated using actual 2019 annual costs and the standard 2021 Part D benefit, as described in the Methods.

Figure. Estimated Changes in Out-of-Pocket (OOP) Costs in Medicare Part D for Cancer Drugs With Rebate Pass-through Compared With Current Law.

Sensitivity analyses were: (1) assuming 15% of rebates are retained by the manufacturer and not passed through (ie, only 85% of rebates passed through to point-of-sale prices), (2) assuming beneficiary spending was entirely in the catastrophic phase owing to spending on other medications, and (3) imputing the spending-weighted average rebate (among drugs with rebate data) to products without rebate data. See Methods for further detail.

Discussion

Results of this cross-sectional study demonstrated that out-of-pocket costs for brand-name cancer drugs under Medicare Part D would be an estimated 3% to 6% lower under a regulation requiring rebates to be reflected in point-of-sale prices. The rule’s projected savings for beneficiaries would be reduced if Part D premiums increase, as is anticipated by Medicare,^1,3 and further attenuated if manufacturers fail to pass through all rebates to point-of-sale prices. A limitation of this study was using the standard benefit; however, actual plan designs must be actuarially equivalent to the standard benefit. Because rebate estimates were not available for a minority of drugs, we conducted a sensitivity analysis applying a class-average rebate level; this may overestimate possible savings (average rebate of 9.5% vs 2% previously reported⁴).

Medicare beneficiaries with cancer face some of the highest out-of-pocket costs for prescription drugs, which would be minimally alleviated by a rule eliminating rebates. Policy makers should explore caps on patient cost sharing and other benefit redesign to more effectively address the high out-of-pocket costs for cancer drugs.