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The Pulse of the Pharmaceutical Industry

CMO perspective on world without Medicare rebates

Written by: | | Dated: Friday, December 7th, 2018

Richard G. Stefanacci


By Richard G. Stefanacci, DO, MGH, MBA, AGSF, CMD
Chief Medical Officer, The Access Group, an EVERSANA company


For chief medical officers (CMO) of health systems, a world without Medicare rebates complicates the selection of a preferred treatment while also opening opportunities for improved clinical and financial outcomes. This is the result of Medicare rebates being eliminated, potentially being replaced by patient assistance programs (PAP) and greater use of ‘beyond the pill’ programs that provide services directly to patients. This world without pharma rebates will force treatment differentiation on the basis of factors beyond rebate pricing to include ‘beyond the pill’ offerings.

Medicare has long allowed pharmaceutical companies to provide rebates to stakeholders to gain preferred status. This allowance came with a prohibition on pharmaceutical sponsored patient assistance programs (PAP). Recently, the Trump administration has proposed eliminating rebates in Medicare by withdrawing the “safe harbor” in anti-kickback laws that has permitted pharmaceutical manufacturers the ability to negotiate with payers for formulary placement.

This safe harbor began almost 50 years ago when Congress passed the Anti-Kickback Statute, which prevented pharmaceutical manufacturers from offering inducements to patients to use their products over others. But Congress amended the law to give the Secretary of Health and Human Services the power to determine which practices deserve “safe harbor” from kickback enforcement; pharmaceutical rebates was gained this safe harbor status.

This brave new world will cause many winners and losers.



The losers will come as a result of stakeholders who are currently heavily reliant on the current pharmaceutical rebates for profits and with no ability to take advantage of the switch to value-based engagement offerings. Specifically, these losers will include pharmaceutical manufacturers who are heavily reliant on securing preferred status through rebates and are unable to maintain position through “Beyond the Pill” services and articulation of their value ex-rebates.

Beyond these pharmaceutical manufacturers are pharmaceutical benefit managers (PBM) and pharmaceutical drug plans (PDP). Both of these groups because their primary focus is the pharmaceutical spend, benefit greatly from pharmaceutical rebates. These groups are actually harmed financially through increased spend from increased adherence with no benefit from improved clinical outcomes and reduction in total cost of care since this is far outside their responsibility.



Winners in this brave new world start with patients who should receive lower out-of-pocket spending through both direct price reduction and PAP. Patients will also benefit from a more personalized approach as pharma develops targeted services for subpopulations including caregiver resources, financial services like PAPs, clinical services such as adherence programs and connecting patients to advocacy groups.

Additional winners include those focused on population health, responsible for total cost of care such that increased adherence is viewed as a benefit in its reduction of expenditures through improved clinical outcomes. Historically this group was limited to the payers responsible for all care, but as risk is shifting to health systems through accountable care organizations and bundled payments, health systems are also positioned to win in this shift. Adherence-related services will be important in making sure patients take their prescribed drugs for better clinical outcomes and securing a win with this shift.


Value-based Engagement

With rebate based contracting gone, new value based engagements will require offerings beyond the pill’s clinical benefit and pricing. This includes beyond the pill offerings which were described in the Harvard Business Review – “How Pharma Can offer More than the Pills.” In this piece Sachin H. Jain described how medicines alone are often not enough for patients to achieve optimal clinical outcomes. Instead resources provided in support of the treatment could have impact on clinical outcomes through improved adherence or even a placebo effect based on patients’ perception of a treatment’s benefit.

Many pharmaceutical companies already offer “beyond the pill” resources such as disease specific management apps as well as recent offering through text-based reminder programs – all in an effort to increase adherence and improve outcomes.i

With no ability to differentiate a product based on rebates, resources such as ‘beyond the pill’ will be utilized to increase a product’s value in the eyes of health systems through their ability to improve accountable clinical and financial outcomes. These factors, currently not very impactful on current clinical pathways, may change the listing of preferred treatments and include accessing these resources.

The potential for the allowance of patient assistance programs (PAP), which may be offered in exchange for eliminating rebates will likewise change preferred treatments and available resources within clinical pathways. Given that the providing of PAP would directly reduce patient out-of-pocket (OOP) spending, adherence will be improved. There is significant research to support the fact that increasing patient cost sharing was associated with declines in medication adherence, which in turn was associated with poorer health outcomes.

From a health system’s perspective, PAP can be of benefit when utilized to improve adherence and occurring through the managed care organization’s utilization management process. However, health systems view PAPs as problematic when they are used to circumvent the use of a health system’s preferred treatment. As such, clinical pathways may have to call out the ability to restrict the use of PAPs until the preferred treatment has been accessed following the plan’s prescribed utilization path. After which, PAP can be used solely for adherence purposes rather than means to bypass preferred treatment use.

This reduction in patient OOP through use of PAP improves adherence which in turn would improve clinical and financial outcomes. Multiple studies have demonstrated the impact of reducing patient out-of-pocket on adherence.ii iii iv Additionally, including the PAP resource in a health systems’ clinical pathway can be beneficial to not only patients through lower OOP, but improved clinical outcomes as well as improved financial outcomes for the health plan.


Articulating Value

The articulation of pharmaceutical product value continues to start with clinical efficacy. However, in drug classes where clinical attributes like safety and efficacy are considered equivalent among products in a class and no ability for rebating advantage, the sole differentiation may be “beyond the pill” benefits. Again, CMOs responsible for population health clinical and financial outcomes are positioned to benefit from a world with no pharmaceutical rebates but one where products offer resources that improve adherence resulting in better clinical and financial outcomes for patients and payers through new value-based engagements.



i Eaddy MT, Cook CL, O’Day, Burch SP, Cantrell, CR. How Patient Cost-Sharing Trends Affect Adherence and Outcomes. PT. 2012 Jan; 37(1): 45–55.

ii Eaddy MT, Cook CL, O’Day, Burch SP, Cantrell, CR. How Patient Cost-Sharing Trends Affect Adherence and Outcomes. PT. 2012 Jan; 37(1): 45–55.

iii Farias, Albert J., PhD, MPH*; Hansen, Ryan N., PhD†; Zeliadt, Steven B., PhD‡,§; Ornelas, India J., PhD‡; Li, Christopher I., MD, PhD||,¶; Thompson, Beti, PhD‡,¶

The Association Between Out-of-Pocket Costs and Adherence to Adjuvant Endocrine Therapy Among Newly Diagnosed Breast Cancer Patients American Journal of Clinical Oncology: July 2018 – Volume 41 – Issue 7 – p 708–715

iv Farias AJ, Du XL. Association Between Out-Of-Pocket Costs, Race/Ethnicity, and Adjuvant Endocrine Therapy Adherence Among Medicare Patients With Breast Cancer. J Clin Oncol. 2017 Jan;35(1):86-95. Epub 2016 Oct 28

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