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The Trump administration recently proposed a rule that could potentially slash out-of-pocket pharmacy costs for some of the sickest Americans. The reform is greatly needed, as a substantial minority of Americans struggle to afford their medications. Making medications more affordable would improve the health of the most vulnerable among us. In some circumstances, it could even reduce total health care spending by averting preventable hospitalizations and emergency room visits.

The reform targets Medicare Part D, the federal prescription drug benefit. Over 44 million Americans were enrolled in Part D plans at the end of 2018. Part D plans are subsidized by the government and are administered by private insurers.

Private insurers regularly contract with "pharmacy benefit managers" to help determine which drugs to include in each Part D plan. Given their purchasing power, PBMs negotiate with pharmaceutical companies to obtain discounts. To ensure health plans give their medications preferential treatment, drug manufacturers provide massive rebates and discounts — over $150 billion in 2017 — to PBMs, insurers, and employers.  

But patients who use these highly discounted drugs rarely receive their fair share of these substantial savings. Typically, Part D insurers use these discounts — the actual amounts are closely held industry secrets — to reduce premiums, but not lower copays, coinsurance, or deductibles for patients.  

As a result, patients who need medications face higher out-of-pocket costs than they would if the discounts were applied at the pharmacy counter. This opaque system of rebates is especially problematic for patients who rely on multiple medicines to stay healthy.

The administration's proposed rule would eliminate these perverse incentives, prohibiting rebates unless they're shared directly with patients at the pharmacy.  

For a sense of how this would impact patients who rely on drugs that typically come with big rebates, consider a new study from the Partnership to Fight Chronic Disease. Researchers there estimate that patients with diabetes would save $3.7 billion on their medications if the administration's proposal were implemented. Americans needing drugs that treat cancer, autoimmune conditions, and other diseases would also save billions more.

Americans do not care about drug costs in the aggregate; they care what those drugs cost them personally. In other words, they're concerned about out-of-pocket costs. The administration could further diminish patients' financial worries by reducing cost-sharing requirements in Medicare Part D. Many beneficiaries must currently pay 30 percent or more of their prescription's cost out-of-pocket. One million Medicare enrollees spend over $3,000 out-of-pocket annually, according to the Kaiser Family Foundation. 

Multiple studies show that patients are more likely to fill their prescriptions when cost-sharing is low. And when patients take their drugs as scheduled, they're more likely to stay healthy and avoid expensive hospitalizations.

As former Surgeon General C. Everett Koop famously said, “Drugs don't work in patients who don't take them." 

Medication non-adherence accounts for as much as a quarter of hospital and health facility admissions in the United States each year, causing up to $290 billion in avoidable annual health spending. Enhancing patients' access to drugs that manage chronic conditions would improve their health and well-being -- and in some instances lead to significant savings by reducing preventable emergency department visits and hospitalizations. 

The administration's proposal is good news for Medicare patients. It should make it easier for them to afford their prescriptions and stay healthy. 

Dr. A. Mark Fendrick is the director of the Center for Value-Based Insurance Design at the University of Michigan

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