Reinvested Rebates: Home Run for the Member? It Depends…

Top 3 Things You’ll Learn

  1. What reinvested rebates are and how they work
  2. Advantages and disadvantages of reinvested rebate arrangements
  3. How reinvested rebates impact members in various pharmacy benefit plan designs

Drug rebates can help reduce up to 25% – 30% of overall pharmacy plan spend, saving employers millions of dollars on high-cost drugs utilized by their employees and members. Traditionally, drug rebates are provided from drug manufacturers to the pharmacy benefit manager (PBM) or pharmacy benefit optimizer (PBO) and then shared with the plan sponsor who decides how to best use those dollars to offset plan costs. In recent years, alternate rebate models – such as reinvested rebates and point-of-sale rebates – have entered the market as a response to the ongoing push to increase drug pricing transparency and get rebate dollars into members’ hands.

It’s important to understand the differences in the options your self-funded employer clients have when it comes to drug rebate arrangements. In this article, we’ll focus on reinvested rebates and how they impact your clients’ pharmacy benefit plans and their members.

Drug rebates can help reduce up to 25% – 30% of overall pharmacy plan spend, but it’s important to understand that different rebate arrangements produce different results for the plan and members depending on the Rx benefit design.

What Are Reinvested Rebates?

Reinvested rebates offer an alternative pricing arrangement than the traditional rebate model. The reinvested rebate pricing method takes the value of the rebates and applies them to the brand discount. Instead of your clients receiving rebates months after the end of the quarter, they would receive deeper brand discounts in lieu of a rebate payment. For example, instead of receiving a 19% retail brand discount, your clients may see a 45% brand discount applied to all brand-name prescription drug claims.

Reinvested rebates positively impact members with coinsurance or while in the deductible phase of a copay structure, as the member would experience a lower drug cost compared to what they would pay if the pharmacy plan had a traditional rebate arrangement. Despite the deeper drug discounts, plan costs would increase because members are now sharing in the value of the rebate as opposed to the plan keeping all of the rebate dollars. The majority of pharmacy plan sponsors do not elect this pricing option because they rely on the ability to utilize rebate dollars to offset higher premiums for their members, employee wellness program fees, or other pharmacy or medical benefit costs.

Advantages:

  • Your clients do not have to wait until months after the end of the quarter to receive their rebates.
  • Rebate value is provided on brand-name prescription drug claims at the point-of-sale, reducing the price paid by members at the pharmacy.
  • Members in the deductible phase or with co-insurance are now receiving the value of the rebates, shared with the plan.

Disadvantages:

  • Pharmacy plan costs likely will increase as a portion of the rebate value shifts to members through drug discounts.
  • With drug rebates now being shared with members, your clients may need to increase pharmacy plan premiums to offset costs.
  • Reinvested rebate proposals may not be as competitive as a traditional proposal.
  • Members with flat copay structures do not benefit from reinvested rebates because they are paying the same flat copay amount regardless of the brand drug discount that is applied.

All About the Numbers:

Consider this sample scenario of how reinvested rebates impact the pharmacy plan and member costs compared to the traditional rebate model. The flat copay example illustrates that the member really does not benefit in this scenario. The co-insurance scenario provides more member benefit but an increase in plan cost, which may lead to an increase in premiums.

 

FLAT COPAY EXAMPLE                                                                                                                          CO-INSURANCE EXAMPLE

  Traditional RR   Traditional RR
AWP $300 $300 AWP $300 $300
Discount 16.00% 38.50% Discount 16.00% 38.50%
Cost $252.00 $184.50 Cost $252.00 $184.50
Copay (Flat) $25.00 $25.00 Copay (20%) $50.40 $36.90
Net Cost $227.00 $159.50 Net Cost $201.60 $147.60
Rebate $68.00 $0.00 Rebate $68.00 $0.00
Plan Cost $159.00 $159.50 Plan Pays $133.60 $147.60

 

As shown, drug rebates can have a significant impact on your clients’ pharmacy plan spend and member costs. It’s important for you and your clients to understand the different types of rebate arrangements and to do that math to confirm the deal aligns with the best interests of them and their members.

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