How Rebates Are Driving Up Drug Prices

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 you directly, 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 you money when all is said and done.

You Can’t Impact The Past: ↑ Advocacy + ↑ Quality = ↓ Cost

Thursday, May 20, 2021, 2:00 PM ET / 11 AM PT

Unlike most things, healthcare services have an inverse relationship between cost and quality: the better the quality, the lower the cost. Unfortunately, the current health benefits market is completely opaque and lacking any meaningful, realistic transparency. Additionally, we have always been taught that easy = better when designing health benefits programs for employers and their employees. However, the cost and quality of healthcare can vary dramatically within the same city. Utilization Management for example, where your members access healthcare, is one of the single most important additions to your health plan design.

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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. Your business and full-time workers end up 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, you’re able to ensure your PBMs have your best interest in mind while sourcing prescription drugs.