Financial Value Comes from Drug Rebates Not Discounts

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Financial Value Comes from Drug Rebates Not Discounts
Calendar07 July 2014

This article points out that some pharmacy benefits managers (PBMs) have attempted to control prices by excluding drugs in key classes from coverage on their formularies. However, it’s not clear how effective this strategy is. So far, the financial value to employer plan sponsors comes from higher rebates, not deeper discounts on unit costs. Rebates are generated when patients use the preferred drug. However, the level of rebate may depend on a complex formula driven by increased market share and other variables that no one plan sponsor can influence. In effect, rebates are a retrospective discount on a drug based on increased use. When the cost of a drug increases during the year, the enhanced rebate can offset the unit cost increases. In a recent report by the Drug Benefits Institute comparing the 2013 Gross Commercial Trend of the four large PBMs, the two using the strategy of excluding drugs had the highest trends. Reduced competition, generated by fewer options, may lead to higher unit costs during the year so the manufacturers' financial positions are not compromised based on their higher rebate requirements. One consideration for plan sponsors is to request other cost control measures such as a trend guarantee that are more measureable on a plan sponsor specific basis.

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