A new report released by the Center for Improving Value in Health Care (CIVHC) shows that prescription drug spending continues to grow rapidly in Colorado and so do drug rebates for brand and specialty drugs. Increases in both spending and the percent rebates of total spending is leading to calls for more transparency around the impact drug rebates are having on rising health care costs.

Prescription drug costs represent the fastest rising health care expense in the United States. That is no different in Colorado, where prescription drugs represent approximately 19% of total health care spending according to data in the Colorado All Payer Claims Database (CO APCD). Prescription drug rebates refer to compensations provided by manufacturers to health insurance payers to help reduce the cost of the certain drugs.

At a broad level, drug rebates are provided by manufacturers to health insurance payers and Pharmacy Benefit Managers (PBMs) in exchange for placing the drug on the payer’s preferred drug list or formulary, which increases the drug’s market share. Public payers like Medicare and Medicaid use drug rebates to reduce the overall cost of providing coverage. It is less clear how commercial payers are using rebates, although they can be used to reduce premiums and can be shared with their employer clients depending on the contract terms negotiated between the employer and their payer or PBM.

In the analysis of 2017-2019 drug rebate information submitted to CIVHC by health insurance payers in the state, total pharmacy spending increased from $3.8B to $4.4B, or 14%, without rebates. However, when factoring in rebates received back by payers through their Pharmacy Benefit Managers, pharmacy spending increased 11% ($2.9B to $3.2B), indicating that drug rebates are helpful in reducing overall spending.

However, while proponents of drug rebates argue that they are beneficial in reducing costs and keeping premiums lower, opponents argue that drug rebates may be incentivizing the use of higher cost drugs like brand name and specialty drugs, and that the savings are not being shared directly with consumers and employers. Data in the analysis shows that the percent rebates of total pharmacy spending for brand and specialty drugs continues to rise for commercial payers. Rebates as a percentage of total spending increased from 22-24% for brand drugs, while for specialty drugs it increased from 10-13% between 2017 and 2019.

The analysis also shows that across all payers, while specialty drugs make up only 1% of the volume of drugs dispensed through pharmacies, they represent 39% of all pharmacy spending. For commercial payers, the increase in both total spending (14%) for specialty drugs as well as the significant increase in total rebates (49%) from 2017-2019 could indicate that rebates are driving higher use of specialty drugs overall.

Additional highlights in the report include:

• Across all payers, rebates represent 27% of total pharmacy spending, and increased from 25% to 27%.
• In 2019, rebates represented 18% of total spending for brand and specialty drugs combined.

To help stakeholders dig deeper into drug rebates, CIVHC released a full interactive report, downloadable data set, and an issue brief online giving an overview on prescription drug rebates and detailing the report findings.

The impact of drug rebates on soaring prescription drug costs is being examined by policymakers and professionals both nationally and in Colorado. In an effort to achieve cost savings, in the 2021 legislative session, the Colorado legislature approved SB21-175, establishing a Prescription Drug Affordability Board (PDAB). The legislation requires health insurance payers to provide more detailed drug rebate information to CIVHC which will enable further evaluation of the impact of drug rebates. This report, coupled with more prescription drug spending and rebate data in the future will support the analysis of the PDAB as it works to identify the most effective ways to impact increased drug costs across Colorado.

For more information about this report and other reports available please visit our website at www.civhc.org or contact us at info@civhc.org.