I’ve had little positive to say about the Trump administration, but Trump may finally be doing something to help most Americans. However, the issue is obscure, and may not help him get re-elected, although it could.
The issues is the PBM system. There are rebates that drug makers give insurers and pharmacy benefit management companies in order to give favorable treatment to their products. Trump wants to ban the rebates. To understand what this means, you need some background on how drug insurance works.
First off, each insurer has what’s called a “formulary.” That’s a listing of drugs for which they will pay. Typically, they classify drugs into one of five tiers, 1 being generics and the least expensive, and 5 being custom or rare and the most expensive. There is no standard formulary — each insurer has their own and they do not treat the same drugs consistently. Nor do they have to cover every drug. The legal requirement is to have two drugs for every “therapeutic category.”
Example: Take Advair, a common steroid inhalant for COPD. One insurer may cover it, another may not. One insurer may treat it as Tier 2, another as Tier 4, with substantial differences in cost to the patient. That’s why you, or your agent, need to check the formularies before you sign up for health insurance or a Medicare drug supplement or Advantage plan.
Insurers don’t in many cases negotiate prices for drugs directly with drug manufacturers. Instead they hire a middleman, a pharmacy benefit manager (PBM), to do that.
The drug industry provides financial rebates to PBMs and insurers in return for including their product in the formulary, and for the tier to which the product is assigned. These are good old fashioned kick-backs, which are flatly illegal in transactions with the government, and of questionable ethics elsewhere.
In return, PBMs have been accused of promoting more expensive drugs over less expensive drugs to maximize the rebates they receive. This in turn drives up insurance costs to consumers as well as out-of-pocket costs for medication covered by insurance.
Getting rid of the rebates would potentially reduce what consumers are paying by steering them toward less expensive medication.
However, the change would require action by Congress, and that’s where things get interesting. The drug industry is the leading donor to Congressional re-election campaigns, and leaders of both parties are receiving substantial contributions from that industry. Paul Ryan was one of 80 Republicans getting money from the industry, and received $250,000 from the industry for the last election in which he ran. On the other side, Corey Booker also receives substantial funds from the industry, among others.
The Trump proposal could be all for show, knowing that he can’t get it passed. Or he could be looking for a way for Democrats to demonize themselves by defending the drug industry — although that could backfire if GOP members taking money from the industry rise to its defense. Anyway, it will make for political entertainment this year.