Are drug rebates padding the bill for employers? 

There has been a strong emphasis on savings derived from manufacturer rebates, but the Federal Trade Commission’s May 2021 report on rebate walls suggests that all that glitters isn’t gold: a focus on driving rebates can distract from the goal of reducing overall net plan costs. For the best outcomes, a strategy to reduce drug spend should include a balanced review of rebate transparency, drug utilization, and plan design.

Navigating changing rebate environments

First, it helps to look at how rebates are positioned. When passed through as intended, rebates are good, reducing the overall cost of a drug for employers and their members. However, as industry players and consultants began correlating PBM performance with maximized rebates, the advantages became less clear. Over time, strings have been attached, leaving employers with fewer dollars returned, less choice, and higher total plan costs. Remarkably, this shift in PBM practices remains widely accepted, with large rebate dollars serving as a substitute for emphasizing total plan savings and lower cost therapies that don’t come with rebates.

In most cases, drug manufacturers provide rebates to payers – often through PBMs, who also negotiate drug prices with pharmacies. This dynamic can lead to jockeying for position on formularies, or preferred tiers within the formulary, where rebates become an incentive to both the PBM and employer to prefer certain medications over others. Worse, manufacturers can create a “wall” or refuse to provide drug rebates if a rival therapy’s more affordable medication is also listed – contributing to the erosion of employer and patient choice.

According to the FTC’s antitrust analysis, competition between manufacturers to drive their drug’s utilization “can become a ‘trap’ for payers and providers” when stakeholders steer away from considering lower-cost, generic options; instead opting for high-cost, branded drugs with high rebate returns.

Impacts to employers and members

A rebate wall in a highly utilized medication category can cause a real dilemma for employers. The higher-priced drug, even with the manufacturer rebate, can cost more than its low-cost competitor. So, from an economic perspective, it is in the best interest for the plan sponsor to encourage use of the newer medication. But if the manufacturer of the higher-priced drug implements a rebate wall requirement, the plan will lose access to the rebate as they begin encouraging use of the lower-cost medication. Conversion can take time. As a result, plan sponsors may feel compelled to stick with the higher-priced, popular medication – focused on driving rebates, even when there is an option to save significantly.

Rebate walls, just like rebate guarantees are just another tactic to shift the conversation away from net plan costs. The real conversation should be about how to deliver a high-quality medication benefit at the lowest net plan cost. Net plan cost should be simple math with the plan’s discounted costs paid at the pharmacy offset by rebates provided by manufacturers. But this simple economic equation becomes very difficult when rebates are delivered months after the prescriptions are paid, and data transparency is not provided.

Changing the conversation

Plan sponsors should be able to understand how rebates and the terms for those rebates affect their overall net plan costs, to make informed choices regarding their plan design and member experience. Transparency into plan data is a key driver for this awareness and is often not provided. Plan sponsors can work with their broker or consultant to gain improved insight.

Two key drivers to pursuing lower net plan costs are:

Rebate transparency: Plan sponsors should be able to easily determine which medications are delivering rebates, whether they are receiving the full rebated amount, and whether the rebates provided more than offset costs of other lower-cost quality medications.

Rationale for preferred medications and resulting utilization: Plan sponsors should have confidence that the medications utilized within their plan are the best agents to meet quality and net cost criteria, and not simply there to drive rebates at the expense of net plan costs.

Understanding how to review net plan costs and ask the right questions will ensure that employers and their members receive the prescription benefit and savings they deserve.

How can employers make sure they are maximizing savings?

Turning attention toward net plan savings does not mean leaving rebates behind. The purpose of this recommended approach is for employers to consider their full prescription benefit to ensure maximum savings. Important questions for plan sponsors to review and/or discuss with their pharmacy benefits consultant are:

Which medicines on our formulary are driving plan costs?

Why this is important: The plan sponsor will learn if their PBM is driving medication utilization toward the most cost-effective solutions or the ones with the highest rebates instead – many medications have similar high quality, clinically effective, nearly-identical equivalents available at lower costs.

Which medications are driving rebates?

Why this is important: Rebates can easily be driven by promoting utilization of high-priced medications at the expense of driving overall plan costs.

Are there quality, lower-cost alternatives to these rebate drivers that would be better for plan savings?

Why this is important: As consumers, we should be asking ourselves questions like we would in any retail setting, such as: “Would I rather get $40 back after spending $100 or would I rather pay the full price and have my total expense be $15?”

Is reform on the horizon?

In addition to government pressure to correct poor PBM practices, employers have other allies and advocates for transparency.Recently, the Food Industry Association aligned with five other organizations to form a PBM watchdog group. Just a day earlier, Pharmaceutical Strategies Group announced their new rebate monitor to assist health plans with apples-to-apples comparisons and evaluation across PBMs. If navigating these emerging solutions seems daunting, it is always valuable to have a conversation with a knowledgeable pharmacy benefits consultant. Rest assured, as healthcare consumerism continues to converge with the accelerating PBM transparency movement, employers and members are poised to win, realizing greater health, savings, and control.

Andrea Pickett is the vice president of customer success at Prescryptive, where she oversees all aspects of customer relationships and operations to ensure every customer achieves positive benefits from Prescryptive’s products and services. Prior to Prescryptive, Andrea spent over 20 years working with healthcare technology and pharmaceutical companies in various customer-facing leadership roles including account management, product development, sales, and marketing.