Top 3 Things You’ll Learn
- What PBMs and insurance carriers don’t want employers to know about drug rebates
- How to calculate prescription drug rebate yield for a pharmacy benefits plan
- How to improve rebate yield using contract and clinical management strategies
Prescription drug rebates can account for up to 25% of specialty brand medication spend and more than 50% of non-specialty brand medication spend for most self-funded employer pharmacy contracts. However, rebate yield is a relatively unknown term in employee benefits circles. It rarely gets mentioned in pharmacy benefits strategy discussions, and this needs to change. Rebate yield plays a critical part in understanding a pharmacy benefits plan’s true performance.
Traditionally, employers focus their attention on pharmacy benefits contract terms, specifically rebate guarantees, without considering their plan’s unique Rx utilization. It is understandable why this is the case; they see a big dollar amount under the proposed rebate guarantee, and they are happy. However, it is important to follow all of the numbers related to a rebate. Consequently, calculating the rebate yield is an important – and often missing – part of the overall pharmacy benefits value equation.
Rebate Yield = Total Rebate Dollars Accrued Divided by Total Plan Spend
How Rebate Yield Impacts Employers
Rebate yield refers to the overall value of the employer’s rebate program while considering the plan’s unique utilization. It shows whether rebates are working in best interest of the employer, instead of the pharmacy benefits manager (PBM) or insurance carrier. Remember, these same PBMs and carriers own Rx fulfillment channels and negotiate rebates with drug manufacturers while also potentially benefitting from the sale of a drug.
Make no mistake, rebate guarantees are a critical component to a competitive and optimized pharmacy plan. But do not be fooled into thinking that a higher rebate is the best thing for the employer. Rather, if you see a high rebate guarantee in a pharmacy contract, raise the red flag! Find out why and find out what the employer’s rebate yield is. A higher rebate amount is a primary indicator that there may be little or no clinical management to control the plan’s drug trend.
Consider this: an employer spends $5,000 per claim on a specialty medication that has a lower-cost alternative or is prescribed inappropriately, and the plan receives a $500 rebate on that medication. Does this make good financial sense? Unfortunately, some PBMs and carriers think so, but this practice is putting employers at increased, and possibly long-term, financial risk.
When employers pay more than is necessary because of expensive medications that should not be covered, the plan is not benefitting from the high rebate that was promised in the contract. Instead, rebates on unnecessary drug utilization leads to a net increase in plan cost and a lower rebate yield. The key to optimizing rebate yield – and overall pharmacy plan performance – is ensuring that the plan is not spending unnecessarily on high-cost medications in the first place.
The key to optimizing rebate yield – and overall pharmacy benefits plan performance – is ensuring that the plan is not spending unnecessarily on high-cost medications in the first place by using a combined contract and clinical management approach.
How to Improve Rebate Yield
The best strategy to optimize rebate yield is by utilizing a combined contract and clinical utilization management approach. The goal is to ensure that the plan isn’t spending unnecessarily on high-cost medications just to be able to earn rebates. To accomplish this, employers should implement clinical utilization management programs that focus on eliminating wasteful spending and encourage shifting members to lower cost, clinically equivalent alternative medications. Doing so will decrease the employer’s pharmacy benefits costs and increase rebate yield.
When executed together, a combined contract and clinical approach to rebates will enhance the plan’s rebate yield and show the employer just how much drug rebates are working to their advantage. The plan will be optimized to maximize rebates while maintaining plan costs appropriately. The result: an increased rebate yield and greater overall rebate value for the employer.