Legislative and regulatory developments on pharmacy benefit manager (PBM) oversight continue to bubble up. A recent headline about a large PBM company phasing out rebates shows that PBMs are voluntarily moving away from traditional drug manufacturer rebates toward pass-through rebates or point-of-sale rebates with negotiated fees.

PBM pricing is complex and depends on contract language. For background, a previous blog explaining spread pricing described rebates in the context of pass-through pricing.  Read on for a general overview of rebates.

Three Types of Rebates

Traditionally, pharmaceutical companies pay a negotiated rebate, a partial refund or discount, to a PBM after a plan member/consumer gets a prescription drug at a pharmacy. PBMs often negotiate rebates from pharmaceutical companies based on their bulk purchasing power (i.e., the volume of drugs that the PBM purchases for its entire customer base).

• With a traditional rebate, PBMs retain the full rebate from the drug company as compensation.
• With a pass-through rebate, PBMs refund some or all the rebate to their clients (i.e., group health plan sponsors). For example, a contract could require 100% pass-through to the plan sponsor.
  • Why it’s appealing: Plan sponsors can use the rebates to lower premiums for all members. However, many other factors increase premiums.
• With a point-of-sale rebate, the discount goes directly to the consumer or plan member when they get a prescription at a pharmacy.
  • Why it’s appealing: This lowers direct costs for the members who buy drugs that generate a rebate. Better ability to afford prescriptions helps with medication adherence and managing chronic conditions.  

Phasing Out Rebates

Express Scripts plans to phase out rebates for its fully insured plans by 2027 and for its self-insured employer plans by 2028, as reported by Healthcare Dive. The PBM will pass the savings it negotiates with drugmakers to members at the point of sale. No longer retaining post-sale rebates for clients eliminates a key grievance of PBM critics, the article said. As for timing, this will become the standard model for clients starting in 2028, though a rebate arrangement will remain available if clients prefer, an Evernorth spokesperson told Healthcare Dive. As mentioned earlier, plan sponsors may prefer to require 100% pass-through of rebates and use that as a lever to manage premium increases.

Regulatory and Legislative Developments

Forthcoming regulations based on a recent executive order increasing PBM fee transparency will cover rebate arrangements. If enacted, recent health reform packages, such as the Lower Health Care Premiums for All Americans Act (HR 6703), would require PBMs to disclose the rebates the PBM negotiates with drug companies to group health plans on a regular basis.

To stay up-to-date with these changes and more, view the International Foundation’s Regulatory Updates and Legislative Tracker.

Developed by International Foundation Information Center staff. This does not constitute legal advice. Please consult your plan professionals for legal advice.