Making Rx Rebates Make Sense in California
June 22, 2023
By Rhonda Smith
While everyone agrees high health care costs are a major problem, one critical aspect that often goes unnoticed is the role Pharmacy Benefit Managers (PBMs) and health insurers play in driving these high costs. It is past time we shed light on this topic and demand a fairer system. Thankfully our local legislator, Senator Steven Bradford (D-Gardena), is doing his part and standing up for patients through SB 873, which would immediately lower out-of-pocket costs at the pharmacy counter.
With PBMs acting as the middlemen between pharmaceutical manufacturers, pharmacies, and health insurers, they play a big part in determining the cost of prescription medicines. Using rebates as leverage, they negotiate prices, manage formularies, and administer prescription drug benefits for millions of Americans.
Imagine this scenario: a patient walks into a pharmacy, presents their insurance card, and receives their prescribed medication. They pay their copay or coinsurance, unaware that behind the scenes, the PBM previously negotiated with the drug manufacturer a rebate on that medication, which, on average, is 49% of the list price. So, if the list price of a medication is $200, the PBM’s health insurer client only pays $102, but the patient still pays based upon the $200 list price instead of the $102 rebated price. How is that fair?
What’s worse, because the system lacks transparency or accountability requirements, PBMs end up pocketing a significant portion of the rebates instead of sharing the savings with patients by ensuring their costs at the pharmacy counter are based upon the rebated price, not the higher list price. While a $98 spread in the scenario above doesn’t seem like a lot, a report from the Department of Managed Health Care showed that health plans in the state received $1.7 billion in rebates in 2021 alone.
It’s simply not right that despite having insurance, Californians are being forced to pay increasingly higher co-pays and other out-of-pocket costs for their medications. Especially when we know that historically underserved communities have lower utilization of and adherence to prescribed medicines. A 2019 study found that Asian, Hispanic, and Black Americans were 20-50% more likely to not take their blood pressure medications as prescribed and 35-60% more likely to not take their cholesterol medications as prescribed due to cost.
It’s clear that marginalized communities and those with chronic illnesses face the greatest challenges when it comes to accessing affordable medications, yet the current system makes it even harder for them.
In 2020, nearly 1 in 10 new prescriptions were never picked up at the pharmacy. According to the report, only 10% of patients with out-of-pocket costs of approximately $10 abandoned their medicines, but when costs rose to more than $2,000 per prescription, almost 50% of patients abandoned their medicines. With non-adherence and medication abandonment leading to worse outcomes and the widening of existing health disparities, it’s imperative we take action.
By following the path outlined by SB 873, California can reform this broken system, alleviate financial strain, and ensure equitable access to lifesaving medications for all. Requiring health insurers and their PBMs to share rebates directly with patients at the pharmacy counter will immediately lower out-of-pocket costs, particularly for Californians living with cancer, diabetes, cardiovascular disease and other chronic or rare diseases.
Fortunately, we know this type of policy is easy to enact because some national PBMs have already done so, and states like Indiana, West Virginia, and Arkansas have too. One national PBM owned by a health insurer even found that sharing rebates at the point-of-sale saved patients an average of $130 per eligible prescription and improved medication adherence rates between 4-16%.
While critics argue that sharing rebates will lead to higher premiums, the benefits here far outweigh any costs. First and foremost, SB 873 will ensure patients no longer have to choose between their essential medications and other basic necessities, allowing them to prioritize their health without financial strain. Second, studies have shown that critics’ claims about premiums are seriously inflated.
A study by the California Health Benefits Review Program of a similar policy measure found that premiums could slightly increase 0.3%, but patients would save more than $70,000,000 annually. And in comments to the New York Times, a PBM representative said providing point-of-sale rebates “would have a minimal effect on premiums” while “the benefit to the individual is meaningful.”
In my eyes, SB 873 is a no brainer.
We need proactive measures, like SB 873, to ensure that PBMs and health insurance plans are held accountable – after all, we rely on them for our well-being.
By demanding transparency and passing SB 873, California can take a significant step toward the creation of a health care system that truly values patients over profits. It is time to empower patients with timely access to affordable medications like they rightfully deserve and foster a healthier future for our communities.
Rhonda Smith is the Executive Director of the California Black Health Network, the voice and trusted resource for Black Health Equity in California and the only Black-led, statewide organization dedicated to advancing health equity for all African Americans and Black Immigrants.