What Employers Need to Know About Drug Rebates

Prescription drug rebates have been around for a long time. They are a central piece in the overall economic value proposition for medications — but they come with many things to consider. Initially, rebates were paid for almost every brand-name drug on the market. Over time, drug manufacturers began consolidating those rebates into fewer products to maximize their market share within a formulary. As specialty medications became available, PBMs gained the ability to define what drugs are eligible for specialty medication rebates.

Employers need to understand the rebate guarantee in a contract because the optics can be misleading. You need to understand which drugs are in and out and what the gross calculation is for your business. The gross calculation is all that matters. You can have a specialty rebate guarantee of $2,000 and one for $1,900, and at face value, you don’t know which is the better fit for your company. The only way to know the best deal is to look at the utilization and do the math to make an apples-to-apples comparison.

Drug Rebate Benefits

Rebates are paid on a per-claim basis, but RxBeneftis’ customers have some insulation and protection because of our rebate guarantees both for brand drugs and specialty medications. The rebate amount can be held constant, meaning a higher rebate yield, if we can reduce utilization of lower-cost products and eliminate clinically inappropriate utilization.

Looking at an employer group with a rebate yield of 23%, for example, if they are spending $100 after discounts are applied, their rebate yield will be 23%, and their net cost will be $77. Suppose we can get rid of low clinical value drugs, or we can eliminate inappropriate dosing for specialty medications. In that case, we can bring that per member per month (PMPM) or average cost per brand drug down to $95, for example. We’ve held their rebate constant so that their rebate yield would go up to $23 off of $95, which is closer to 25%.

Read more about the flow of rebate dollars.

Specialty Drug Rebates

Most drug rebates are attached to the more expensive brand drugs and, to a much greater extent, specialty medications. There is no uniform definition of specialty for the industry. Each PBM decides which drugs qualify as a specialty medication. When quoting rebates relative to specialty medications, the PBM may include or exclude certain types of medicines from that rebate guarantee, and that qualification may change depending on how the drug is dispensed.

For example, medications for treating HIV-related illnesses may be excluded or included depending on whether they’re dispensed at a retail pharmacy, where they may get a non-specialty rebate, or from the PBM’s fulfillment center, where the specialty rebate may apply.

We see a lot of competition now in the specialty space that we didn’t in the past. Humira® and Enbrel®, for example, didn’t pay rebates for a very long time, but now that the anti-inflammatories class has grown, we’re seeing more and more rebate dollars coming in to supplement the value those products have on the formulary. Humira, the highest performing drug in the market, is now facing a lot of biosimilar competition. At least one biosimilar will be seen as interchangeable, meaning it can replace Humira without having a prescription rewritten.

It could be some time before we see a net gain from biosimilars. There may be price erosion over time, but the new drugs may be priced at a point where they’ll probably be more expensive when you factor in the value of manufacturer copay assistance programs and rebates. Unless we see precipitous drops or the ability to layer in copay assistance, add rebates, or access assistance programs for these biosimilars, that net gain from biosimilars could be slow in coming. This will vary from product to product and category to category.

I think we’ll continue to see rebates for specialty medications. Average wholesale price (AWP) is the leading indicator of rebates. Hence, as you look at those more expensive brands and specialty medications, and as you look at AWP increasing over time, we will continue to see rebates increase. RxBenefits’ rebate yield for our book of business three years ago was 17%. Last year, it was 22% on gross spend and 25% on plan spend. That shift is indicative of both utilization and AWP.

Keep an eye on developing legislation

In part, rebates are driven by market share. The more control plans have, the more market share they can drive; a tighter market share brings higher rebates. The market share is driven primarily by formularies. Broad formularies were narrowed over time, and copays nudged people to choose less expensive drugs.

The industry saw a big jump in rebates when exclusions were added to formularies. That market share helps the PBM drive the best price allowable by the manufacturer. With specialty medications, price control has come from driving prescriptions through specialized pharmacies.

Currently, proposed legislation may impact the average rebate guarantees. Legislation could provide more choice and move medication dispensing away from the PBM’s specialty pharmacy. This could change the overall average rebate guarantees because these rebates are based on contracts, purchasing discounts, and other factors. What you’re seeing in the market today is predicated somewhat on being able to create that steerage and high market share for specific products. Without that, you could see some erosion in rebates. For example, if your state does not allow exclusivity for specialty fulfillment, that could impact your rebate.

When comparing rebate guarantees, employers must understand the optics, know the contract, know what is included in the specialty guarantee, and know the impact of state laws on all of those elements and more.

There are things that can be done to help maximize the rebate yield without subjecting the plan to unnecessary expense. To learn more about proven contract and clinical management strategies your clients can implement to optimize their pharmacy benefits budgets, check out our Definitive Guide to Managing Pharmacy Benefits.


First published on: Jun 24, 2021

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