Pass-through rebates do not violate non-interference clause but they do increase savings for seniors

Pass-through rebates do not violate non-interference clause, but they do increase savings for seniors.

Jim C. Stansel
Jim StanselJuly 2, 2018

Pass-through rebates do not violate non-interference clause but they do increase savings for seniors.


For more than a decade, Medicare Part D has successfully provided seniors with comprehensive prescription drug coverage. Key to its success is a unique, market-based structure of private-sector competition and robust negotiation that strikes a balance between promoting access and controlling costs. Negotiations between biopharmaceutical companies and private Part D health plans result in significant rebates, with the average rebate in the program reaching 35 percent. Too often, however, these savings are not passed on to seniors at the pharmacy counter, leaving many beneficiaries with higher out-of-pocket costs.

With the release of the Administration’s American Patients First blueprint and the Center for Medicare & Medicaid Services’ (CMS) Request for Information (RFI) on sharing rebates with beneficiaries directly, there is some discussion about whether a Part D point-of-sale rebate – or “pass-through” – policy would violate the Part D non-interference clause.

The short answer to this question is no. The Medicare statute requires that the metric used to determine the price that seniors ultimately pay for their medicines must take into account negotiated price concessions such as rebates. CMS’ proposal is a more than reasonable interpretation of that requirement.

To promote the competition that has made the program so successful, Part D’s non-interference clause has two stipulations:

1) that the Secretary of the Department of Health and Human Services (HHS) “may not interfere with the negotiation between drug manufacturers and pharmacies and [Part D] plans;” and

2) that the Secretary “may not require a particular formulary or institute a price structure for the reimbursement of covered Part D drugs.” 

Requiring plans to pass through savings to seniors at the point of sale does not violate these two provisions.

On the first point, simply requiring that a minimum percentage of the rebate that is independently negotiated with the plans be passed through to seniors, does not interfere with those negotiations, because those negotiations between the plan and the manufacturer still occur without the involvement of CMS or HHS.  Requiring that some of the rebate be passed through does not substitute a government-dictated rebate amount for a rebate that is freely negotiated by the plan and the manufacturer.  Instead, it harnesses the results of that free negotiation to the benefit of the senior.

To the second point in the clause, a CMS requirement that a minimum percentage of negotiated rebates be passed through at the pharmacy counter does not require that a particular formulary be adopted by plans. Further, that requirement would not institute a price structure for reimbursement because the pharmacy would continue to be reimbursed at the rates they had negotiated, which would be unaffected.

The statute requires that “negotiated prices shall take into account negotiated price concessions such as discounts, direct or indirect subsidies, rebates, and direct or indirect remunerations for covered Part D drugs.” A significant argument could be made that Part D is not yet achieving the full intent of that requirement because seniors do not yet reap the direct benefits of those negotiated price concessions. In fact, at the time Part D was implemented, CMS expected that plans would share a large portion of rebate savings directly with beneficiaries. But far too often those savings are not reflected in the price seniors pay at the pharmacy counter. Sharing the savings from negotiated rebates would not violate the non-interference clause, but it would make a successful program even better for the long term.

Learn more about the importance of sharing the savings with seniors here.

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