How the Rebate Rule Will Save People Billions on Drugs

The quickest way to save consumers billions on medicines each year is the administration’s proposed rebate rule. It’s also a once-in-a-generation opportunity to reset our entire health care system to work better, for all Americans.

As I recently shared in an op-ed for USA Today, the rebate rule would convert rebates on brand-name prescription drugs—paid by pharmaceutical companies to health insurance plans—into upfront discounts—shared directly with patients at the pharmacy.

Like the woman in Iowa who takes Humalog insulin. Her Medicare Part D plan requires her to pay $193 per prescription—which she sometimes has to carry as a balance on her credit card. But under the administration’s rebate rule, her cost would drop by two-thirds—to $64.

The rebate rule affects seniors and low-income Americans in privately run Medicare and Medicaid plans. And the administration wants Congress to extend the same protection to all Americans with private insurance.

If that happens, the rebate rule would lead to:

• lower patient costs
• higher patient adherence
• increased price transparency
• wider adoption of value-based pricing

These are the features we all want across our health care system.

Lower patient costs

At Lilly, we are committed to compete on our current net prices—not to raise them. Net prices are the final amounts we receive after paying rebates and discounts to health insurance plans, pharmacy benefit managers (PBMs) and other supply chain entities.

We’ve already told health insurance plans and PBMs that, under the rebate rule, we will maintain our current discount levels. And if the rebate rule expands to private insurance, the list price of our Humalog insulin will come down—and patients’ out-of-pocket costs with it.

This goes against the predictions of the Congressional Budget Office, which assumes the rebate rule would allow pharmaceutical companies to offer discounts 15 percent smaller than their current rebates. If so, this could cause patient premiums and federal spending to rise.

But we believe the opposite will occur.

Supporting our belief is the fact that drug prices are already going down at many companies. Last year, Johnson & Johnson, Sanofi, Novartis and Lilly all experienced declines in our “net prices.” According to IQVIA data, U.S. brand-name pharmaceuticals’ average net prices rose just 0.3 percent last year. That’s well below inflation.

Need for system reform

Unfortunately, these lower net prices are reaching fewer patients. Instead, health insurance plans and PBMs frequently use rebates to reduce premiums for all consumers or to fund other priorities.

But that’s not working anymore because nearly half of Americans with private insurance are in high-deductible health plans. Most patients in these plans must pay at or near the list price for their medicines, until they reach their high deductible—usually several thousand dollars.

This means the sick are subsidizing lower premiums for the healthy.

Pharmaceutical companies have created numerous programs to address this unfairness. A Lilly program, for example, aims to help people in the deductible phase of their high-deductible plans, capping their cost for insulin at $95 a month. Also, Lilly launched a half-price version of Humalog last month, called Insulin Lispro.

But we need broader, systemwide reform—because no other part of the U.S. system works this way. Patients get the benefit of negotiated discounts for doctor visits, lab tests, hospitalizations—but rarely for drugs. The rebate rule would end this unfairness—especially for the 60 percent of Americans with a chronic disease, who take medicines regularly.

It's time for consumer prices to come down. Let’s adopt the rebate rule to make it happen.