At issue is transparency. By requiring PBMs to disclose rebates paid to drugmakers, Medicare Part D spending could cost $10 billion over 10 years. However, disclosure could also cost “significantly less,” writes Peter Orszag, the Congressional Budget Office director, in a March 12 letter to two congressmen.

That’s a lot of pills. Although some perspective is useful. In a 2003 analysis, disclosure was forecast to cost $40 billion over 10 years. Why is there such a big difference now? The CBO wrote that the original analysis foresaw an expensive fallback plan, which didn’t materialize, and also assumed larger rebates would result from narrow formularies. Well, the rebates are still larger than commercial rebates, but aren’t as large as expected, either.

Moreover, the program will cost about $45 billion this year alone. So what’s another $1 billion? A big question now is what Henry Waxman will do this information. The Democrat has asked insurers with Medicare drug plans to provide rebate info, which is given to the Centers for Medicare and Medicaid Services, but not publicly disclosed. This makes big pharma nervous.

In any event, the CBO cautions that disclosure is problematic. “The revelation of rebates to Part D Plans would create pressure to reduce those rebates, which would tend to increase costs for both the Medicare program and, on average, for enrollees.” And disclosure could encourage “tacit collusion” among drugmakers, which may “reduce average rebates” for Part D Plans and cause an increase in “net prices.”

This can be interpreted as good news for PBMs, which don’t like the idea of disclosing rebates. And they’re busy fighting efforts in numerous states, where legislators are pushing for more transparency about rebates and drug switching. In fact, a Washington, DC, law requiring such practices was upheld last week, much to the industry’s chagrin.

And so the Pharmaceutical Care Management Association, the trade group for PBMs, seized on the CBO letter by issuing a press release saying disclosure will cost “billions of dollars” a year. That’s certainly seems to be true. And $10 billion is still a lot of money, by any standard, which may make it more difficult for congress to push for rebates to be disclosed.

Unfortunately, the trade group failed to mention that the cost of disclosure is also forecast to be much less than originally expected. But that’s not surprising. They’re not crazy about full disclosure.

[tags]Congressional budget Office, PBMs, Pricing, Rebates[/tags]