Estimating Rebates and Other Discounts Received by Medicare Part D

Spending in Medicare Part D continues to increase. Yet, studies of Medicare Part D are plagued by a common limitation: none can fully account for confidential rebates and other discounts that drug manufacturers and pharmacies pay to Medicare Part D plans.

To review existing methods and to propose an approach for estimating rebates and other discounts received by Medicare Part D.

Publicly available data from the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, the Centers for Medicare & Medicaid Services, the Medicare Payment Advisory Commission, the Congressional Budget Office, the Government Accountability Office, and the Office of Inspector General.

Existing methods for estimating rebates and other discounts in Medicare Part D have several limitations. This analysis used an approach that aims to improve on those methods. Based on this approach, estimated discounts on brand-name drugs increased in Medicare Part D from 25.4% of gross brand-name spending in 2014 to 37.3% in 2018. There was substantial variation between classes, with estimated 2016 discounts surpassing 50% for some drugs (eg, ophthalmologic and gastrointestinal tract agents) while remaining below 10% for others (eg, antineoplastic and immunologic agents). Between 2014 and 2018, estimated net Medicare Part D spending on prescription drugs increased by 21% from $99 billion to $119 billion. With increasing enrollment, estimated annual net spending per beneficiary remained stable, increasing by just 3% from $2622 to $2694, which was below the 6% rate of inflation during the same period.

Models that fail to properly account for increasing rebates and other discounts will overestimate Medicare Part D expenditures. Rigorous and transparent methods for estimating discounts are critical for understanding patterns in spending and developing new cost-containment strategies.