Encore! EP216: How Medicare Part D Plans Became Addicted to Drug Rebates, With Chris Sloan From Avalere Health

In this Encore episode, Stacey Richter talks with Chris Sloan, associate principal at Avalere Health, about how Medicare Part D plans became addicted to drug rebates — and what happens to premiums, PBMs, and pharma pricing if a proposal to eliminate those rebates actually takes effect.

WHAT YOU'LL LEARN

✅ Why rebates are such a big part of how Medicare Part D actually functions

✅ How rebates flow between PBMs and manufacturers, and how list prices factor in

✅ Why killing pharma rebates would likely raise everybody's insurance premiums under the current model

✅ Why PBMs and health plans oppose eliminating rebates while pharma supports it

✅ How large PBMs can create perverse incentives that push manufacturers to raise list prices

WHY THIS MATTERS

A reboot of a proposal to eliminate pharma manufacturer rebates to Part D plans and PBMs was set to take effect 1/1/2022, and Chris Sloan breaks down what's actually at stake: removing rebates could upend the historically opaque middle layer of drug pricing, but the immediate effect — under how the system is built today — is that premiums go up. That tension is exactly why PBMs and health plans line up against the proposal while pharmaceutical manufacturers back it.

=== LINKS ===

🔗 Show Notes with all mentioned links: Episode Page

🔗 Healthcare Industry Acronyms and Terms

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00:00 Introduction

02:35 "Rebates are a really big part of Medicare Part D."

02:49 What the "follow the dollar" looks like in this scenario.

04:14 How rebates between PBMs and manufacturers work, and how list prices play into this.

05:31 How this system can hurt the patient, and how this new proposal works to change that.

06:42 Pricing a product as a PBM.

08:06 The total dollar value of PBM rebates.

10:50 Do we know how much PBMs are making in incentives?

13:29 Are PBMs helping or hurting the process?

16:18 Why pharmaceutical manufacturers may be more compelled to raise their prices thanks to large PBMs.

17:13 Perverse incentives in the system.

17:57 "At the end of the day, PBMs are still going to be employed by health plans."

18:56 How a new model is combating the perverse incentive that raises prices for patients.

22:11 The trade-off involving premium prices in this new proposal.

24:38 "We're not talking astoundingly large amounts of money."

25:12 Why PBMs and health plans are against this proposal.

26:02 Why Pharma is for this.

26:51 The perverse incentives for health plans.

28:39 The benefit of Part D.

29:25 The advantage of huge rebates.