Similar to manufacturers of consumer product goods, many drug manufacturers offer rebates to lower the overall cost of the medication they produce. Instead of offering these rebates to employers and health insurers, however, pharmacy benefit managers are often the only ones on the receiving end of these discounts. In this blog, you’ll learn how rebates are driving drug prices up, rather than saving employers money.
Alternative Reimbursement: You Can’t Pay Less For Healthcare Unless You Pay Less For Healthcare
Thursday, June 10, 2021, 2:00 PM ET / 11:00 AM ET
The only way to pay LESS for healthcare is to pay LESS for healthcare. This simple statement sounds obvious but is ignored by most employers as reflected in their health benefits. For years, we have depended on the carriers to negotiate the price we pay for healthcare, having a more direct and transparent reimbursement (provider compensation model) is the key to immediately lowering your health benefits cost.
In a post-COVID world, even zero change in employees’ healthcare costs will likely still result in them spending a greater percentage of their income on healthcare. Why? Most household incomes are down so the focus shouldn’t be on maintaining the status quo, but on fighting to reduce overall costs and expenditures.
How Rebates Work
Drug manufacturers offer PBM’s rebates for preferred placement on their formulary. Usually these rebates are also tied to a specific number of filled prescriptions of a specific medication. When that figure is hit, the PBM is paid a rebate for their services.
Rebates’ Effect On Drug Pricing
You would think the rebate system encourages lower drug pricing for everyone involved. However, this could be further from the truth. According to a recent study, every $1 increase in rebate is associated with a $1.17 increase in drug price. Employers and their workers are paying considerably more for drugs, while PBM’s get to keep all the incentives provided by rebates. This presents a clear conflict of interest between several parties.
The solution here is to work with PBMs on transparent contracts. Instead of making money through rebates and arbitrary pricing, PBMs on transparent (also known as pass-through) contracts obtain and provide employers with prescription medication at cost. In exchange for facilitating this arrangement, they receive a singular flat fee. With this strategy, employers are sure their PBMs have their best interest in mind while sourcing prescription drugs.