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Rebate reform will lower medication costs for California patients

Cal Matters
January 10, 2022

Ask almost anyone and they’ll have a story about how they, their loved ones or friends have struggled with high health care costs.

In a 2021 California Health Care Foundation poll, more than half of Californians either skipped or postponed mental and physical health care due to cost. And, according to surveys by Kaiser Family Foundation, 57% of Californians reported they could not access the behavioral health care they needed – a particularly troubling statistic given that the COVID-19 pandemic has exacerbated mental health challenges among adults, teens and children.

While more must be done to remedy this untenable situation, there is a promising bill being considered in the California Legislature that, if passed, will make accessing behavioral and physical health care in the state more affordable for all.

Assembly Bill 933, authored by Assemblymember Tom Daly, a Democrat from Anaheim, addresses a big problem that most people know little about: the state’s prescription drug rebate system. While the word “rebate” evokes a scenario in which consumers get money back following a purchase, the current rebate system does nothing of the sort. AB 933 seeks to reform this system to ensure it works for California patients, as it should.

The current, broken rebate system works like this: health plans hire pharmacy benefit managers to negotiate prescription drug prices with drug manufacturers and create the health plan’s drug formulary. Rebates are used as a leveraging tool during these negotiations. For example, if the manufacturer’s list price for a medication is $100, a pharmacy benefit manager will negotiate a rebate, which on average is 40%, so the health plan ultimately pays $60 for the medication. In return, the manufacturer’s drug receives preferred placement on the plan’s drug formulary, which means the drug can be easily accessed by plan members.

Here’s the problem: Instead of using the money saved through rebates to reduce patients’ out-of-pocket costs at the pharmacy, health plans and pharmacy benefit managers keep the savings as profit. In 2019, the California Department of Managed Health Care found that health plans in the state received more than $1.2 billion in rebates from drug manufacturers.

By passing AB 933, the Legislature can reform a broken system and help those who struggle with behavioral or physical health challenges.

We know that the high cost of health care continues to be a burden on U.S. families, particularly as the COVID-19 pandemic continues to drag on. According to a December 2021 poll by Kaiser Family Foundation, almost half of U.S. adults delayed or skipped some sort of health care in the past year because of cost, and 29% don’t take their medicines as prescribed because of cost.

Consider that one-sixth of Californians were already living with mental illness, including 1 out of every 24 who have difficulty functioning in daily life due to the severity of their illness. Fortunately, a January 2022 report by the California Health Benefits Review Program found that AB 933, if passed, can improve patient adherence rates and even clinical outcomes through reduced out-of-pocket costs at the pharmacy counter. What’s more, the bill would save impacted Californians an estimated $70.8 million, leading to more patients filling their prescriptions and taking medications as prescribed.

Make no mistake: the need for better access to health care is growing every day.

AB 933 is an important step in addressing the cost barriers that so frequently prevent people from getting the help they need. By requiring that at least 90% of prescription drug rebates go back to patients, the state can lower medication costs for Californians and ensure more dollars go toward direct patient care.

People living with mental illness, and all Californians faced with health issues that require prescription medications, will benefit greatly from the passage of this critical piece of legislation.



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