Calculating Rebate Yield

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.

Drug Rebates are a contract item but also a clinical strategy if executed correctly. The key is to optimize rebate yield – and overall pharmacy benefits plan performance – by ensuring that the plan is not spending unnecessarily on high-cost medications in the first place. How? Here’s a little homework to better understand what rebate yield is. Be thinking about pulling some of your self-insured clients, getting their data, and calculating their rebate yield.

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.

How to Improve Rebate Yield

If only minimal clinical management is in place, the positive impact of a good rebate arrangement can be muted. 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.

Check our free on-demand webinar, The Rx Games: How Fortune 100 Companies Achieve Pharmacy Contract Victory, to learn more about other hidden costs to consider in pharmacy benefits.

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