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Concerns With Rebates in the Medicare Part D Program

Drug Pricing and Payment Portfolio

Medicare Part D sponsors reported receiving $6.5 billion in drug manufacturer rebates in 2008. These rebates were approximately 10 percent of total gross Part D drug costs. Rebates can substantially reduce the cost of the Part D program; however, sponsors must accurately report these rebates to the Government in order for the Government and beneficiaries to receive any cost savings. Sponsors underestimated rebates in 69 percent of their bids for plan year 2008. When sponsors underestimate rebates in their bids, beneficiary premiums are higher than they otherwise would be. Further, some sponsors reported large differences in rebates across their plans.

All six of the sponsors we selected for further review received rebates when they encouraged beneficiaries to use certain drugs. These six sponsors commonly had complex relationships with their pharmacy benefit managers, and in some cases, these relationships lacked transparency. This lack of transparency raises concerns that sponsors may not always have enough information to oversee the services and information provided by pharmacy benefit managers. Finally, we found that some of the selected sponsors passed the fees that their pharmacy benefit managers received from manufacturers on to the program, while others did not.

Because of the size of these rebates, it is vital that rebates be reported accurately and that the Government and beneficiaries receive the full benefit of these rebates. Based on these findings, we recommend that CMS: (1) take steps to ensure that sponsors more accurately include their expected rebates in their bids, (2) require sponsors to use methods CMS deems reasonable to allocate rebates across plans, (3) ensure that sponsors have sufficient audit rights and access to rebate information, and (4) ensure that sponsors appropriately report the fees that pharmacy benefit managers collect from manufacturers. CMS concurred with our first recommendation and partially concurred with our fourth recommendation. It did not concur with our other two recommendations.