UNH UnitedHealth Group Inc

By Anna Wilde Mathews and Joseph Walker 

UnitedHealth Group Inc.'s insurance arm will change how it handles some rebates it gets from drugmakers, passing them on to individuals who take the medicines amid pressure to reduce costs and bolster transparency around pharmaceuticals.

The move by the biggest U.S. insurer, which will affect only a limited slice of customers, spotlights a broader debate over spending on drugs and the industry's opaque system of discounts and rebates. The Trump administration has suggested it might make a similar change in the Medicare program.

At issue are the rebates that drugmakers routinely pay to insurers and pharmacy-benefit managers on brand-name drugs, offsetting the full listed prices. The companies use the rebates in a variety of ways, including lowering their own costs and keeping premiums down. They also often pass along much of the benefit to employer clients. But critics, including some drugmakers, say more of the rebates should go directly to the consumers who take the drugs.

UnitedHealth said that, starting next year, the plans that its UnitedHealthcare unit insures for employers will redirect the "overwhelming majority" of the rebate sums to the individuals taking the affected drugs. The change, for around 7.5 million covered people, will reduce costs for individuals by amounts ranging from a few dollars to more than a thousand dollars per prescription, UnitedHealth said.

Dan Schumacher, president of UnitedHealthcare, said the company believes it is the first major insurer to make such a change. "We see it, for those most directly affected, as an opportunity to provide greater benefit and lower costs."

But UnitedHealth said the change won't affect the approximately 18.6 million consumers in UnitedHealthcare's "self-insured" plans, where the employer is the payer. PBMs and insurers, including UnitedHealth, have previously offered employers the option to pass along the rebates to individuals. But only around 4% of employers do it, while 68% use the money more generally to offset their spending on drugs, according to a survey of employers by the Pharmacy Benefit Management Institute.

A spokeswoman for Express Scripts Holding Co. said most of its clients "prefer to use the savings from rebates to keep costs low for all members" by holding down premiums. CVS Health Corp. said clients covering around 12 million people, out of the 94 million whose drug benefits the company manages, pass on the rebates to individuals taking the drugs.

Nathan Cassin, an assistant vice president at Aon PLC, said employers "like the flexibility" of being able to use rebate money as they choose, and PBMs typically charge a fee to pass along rebates to individuals. "That's a reason not to do it," he said.

The focus on rebates has grown as brand-name drug prices skyrocketed in recent years. Insurers and PBMs have demanded ever-larger rebates in exchange for covering the drugs. Last year, rebates paid by drugmakers to insurers and PBMs represented an estimated 23.8% of gross drug costs in Medicare's Part D, the prescription drug program for seniors and the disabled, up from 9.6% in 2007, according to Medicare's board of trustees.

Currently, people enrolled in high-deductible employer plans can end up paying the full list-price of their medicine before they meet their deductible, even though the insurer is getting it at a discounted cost.

Aetna Inc. said, "The majority of rebates we receive go toward lowering premiums and fees for members." Cigna Corp. said it "obtains and shares those discounts with our clients according to the benefit plan design they have chosen." Anthem Inc. said, "Rebates are used in helping to make premiums and copays more affordable."

UnitedHealth said that after its change is implemented, out-of-pocket payments made before a consumer hits a deductible and "coinsurance," where a consumer pays a percentage of the drug's cost, will be calculated using post-rebate prices. Consumers with flat copayments will pay their typical amounts, unless the after-rebate cost is lower than their copay. In that case, they will pay the smaller sum.

Last year, federal officials said they were considering requiring insurers to use a fixed percentage of their rebates to reduce Part D patients' out-of-pocket costs on prescriptions. Several PBMs and insurers -- including UnitedHealth -- oppose the idea and say it will require them to raise premiums.

UnitedHealth's Mr. Schumacher said Medicare plans have a "very different benefit structure and funding methodology" than its employer products. The impact of the rebate change on the premiums of fully insured employer plans will be "negligible," he said.

Peter Bach, a critic of the pharmaceutical industry's pricing practices and health policy researcher at Memorial Sloan Kettering Cancer Center in New York, said that rebates should help individuals who take the affected drugs, including those in Medicare -- it's "good for consumers to have lower prices at the pharmacy counter," he said.

Gerard Anderson, a professor at Johns Hopkins University, said that passing on rebates to consumers could raise premiums for everyone, and he warned that drug manufacturers already make payments to PBMs that aren't labeled as rebates, and those could increase. "You rename it and it's no longer a rebate," he said.

Write to Anna Wilde Mathews at anna.mathews@wsj.com and Joseph Walker at joseph.walker@wsj.com

(END) Dow Jones Newswires

March 06, 2018 07:14 ET (12:14 GMT)

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