Within the raging debate over what is making the cost of prescription drugs skyrocket, is another debate over Pharmacy Benefits Managers and the role they play for employers. PBM’s consider themselves the good guys, arguing that because of their massive buying power, they are procuring prescriptions for large and medium size employers for less money.
One topic in particular that seems to get the most attention is REBATES. PBM firms such as Express Scripts and CVS Health demand rebates on the drugs their customers buy, which can cause the manufacturer to actually raise their list prices in response. The PBM’s argue that rebates keep the overall health costs down, but that is little consolation to patients who are forced to pay the list prices.
Last June, HHS Secretary Alex Azar told a Senate committee that it may be time to actually ban rebates, which launched a whole new round of finger-pointing at the PBM firms. The large firms claim that they return the vast majority of rebates to employers and insurance companies in order to keep premiums lower. In fact, Express Scripts claims they only keep 5% of rebates, and CVS claims to keep only 2%, in spite of the fact that the average drug carries a 40% rebate, and sometimes it’s as high as 80%. These numbers invoke anger in a lot of employers, and it makes sense why they support banning rebates.
But not so fast. If rebates were abolished, it would then allow drug companies to raise their prices at will! CVS recently released a study that showed that CVS’ clients’ gross spending on drugs grew by $222/person between 2011 and 2017, but after rebates the increase was just $46, or less than 1% per year. In other words, rebates went from 13% of gross drug spending to 31% in 6 years. Drug companies are eager to offer major discounts in exchange for a good spot on a plan’s formulary. They do this by paying PBM’s rebates.
This data suggests that rebates actually DO hold down overall costs, but they drive up out-of-pocket expense for people paying list prices, a group of people that includes many patients with chronic conditions like diabetes and asthma.
The issue with rebates isn’t the rebate itself, it is the lack of transparency that prevents rebates from flowing back to employers, their plans, and their employees. A well-functioning and transparent rebate system, along with PBMs who share in fiduciary responsibility with employers, would lower costs for employers and their employees.
Employers need to be educated on their PBM contracts too. Some PBM’s will simply disguise rebates by calling them something different. If it’s not defined as a “rebate”, then they don’t have to pass-through the money back to employer’s plan. If the PBM contract redefines rebate as “fee”, “compensation”, “grant”, “health management fee”, or “discounts described in this section”, then buyer beware. This is a crafty way to redefine rebates, and per the contract, you’re getting your “rebates”, right? This may sound benign, but it can add up to thousands upon thousands of dollars.
When PBMs can move the goal posts by redefining terms of the contract, it is critical to have a knowledgeable pharmacy consultant who can steer the employer through the process of PBM contracts, rebates, and all the other shenanigans involved with prescription drug purchasing.