Understanding the Role of Drug Rebates

Prescription drug rebates have been around for a long time. In the beginning, they were paid for almost every brand-name drug on the market. Over the course of time, drug manufacturers began to consolidate those rebates into fewer products with the goal of trying to maximize their market share within a formulary. That persisted for a long time, and as specialty medications became available, specialty medications didn’t always carry a rebate with them.

Now, most drug rebates are attached to the more expensive brand drugs and, to a much greater extent, specialty medications. We see a lot of competition now in the specialty space where we didn’t in the past. Humira® and Enbrel®, for example, didn’t pay rebates for a very long time, but now as that class for anti-inflammatories has grown, we’re seeing more and more rebate dollars coming in to supplement the value those products have on the formulary.

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

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

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. If we can get rid of low clinical value drugs, or we can eliminate inappropriate dosing for specialty medications, then we can bring that per member per month (PMPM) or average cost per brand drug down to say $95, for example. We’ve held their rebate constant so that their rebate yield would go up to be $23 off of $95, which is closer to 25%.

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.

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