5 Things to Know About Rebates

A guide for employers

Rebates are an important but often misunderstood component of prescription drug pricing.  For employers looking for ways to manage health care costs, it’s tempting to focus solely on the potential savings from rebates. However, it’s important to consider how rebates fit into the broader picture of formulary management, drug utilization and overall health care affordability.

What are drug rebates? 

A drug rebate is a financial discount or reimbursement provided by a pharmaceutical manufacturer to a buyer, such as a pharmacy benefit manager (PBM). Rebates are typically used to lower the cost of prescription drugs after they are purchased. Manufacturers negotiate rebates with PBMs or health plans in exchange for favorable placement of their drugs on formularies (also known as preferred drug lists).

Here are five important things you should know about:

1. Rebates are tied to drug utilization and formulary placement
   
   Manufacturers offer rebates to pharmacy benefit managers (PBMs) like Prime Therapeutics based on drug utilization, or the frequency certain drugs are dispensed. The amount a PBM earns from a manufacturer depends on what tier the drug is placed on in a formulary and how often it is prescribed. This is why the purchase power of a PBM like Prime, which supports several Blue Cross plans together, is so important for lowering drug cost. Drugs that are placed on a preferred tier often receive better reimbursement rates from manufacturers.
    
2. Rebates are drug-specific and vary by marketplace competition
   
   Rebates aren’t a one-size-fits-all deal. They are calculated as a percentage of a drug's cost and vary widely based on the specific drug, its market competition and demand. For example, a brand name drug may offer a higher rebate to encourage formulary placement over competing drugs. The amount payers receive is influenced by these market forces and negotiations between the PBM, the insurer and the pharmaceutical manufacturers. Therefore, not all drugs are equal in terms of rebate potential.
    
3. Rebates keep costs lower for clinically necessary brand name drugs
   
   While rebates may be perceived as a way to save money, their real value lies in helping to lower the cost of medically necessary brand-name drugs. Rebates allow PBMs to pass savings along to payers like Blue Cross and Blue Shield of Kansas, who can then share these savings with employers. This can help mitigate the high cost of some brand-name medications and make them more affordable for your employees, ensuring that necessary treatments remain accessible.
    
4. Brand name drug pricing is reviewed and re-negotiated annually
   
   Brand name drug prices are reviewed every year, and adjustments are made when new products enter the market or when the competitive landscape changes. This annual review means that what you’re paying for a drug today may not be the same next year. These changes could impact both rebate levels and overall drug costs.
    
5. Rebates aren’t always guaranteed, and may be subject to exclusions
   
   Not every drug or plan will qualify for rebates. For example, generics typically don’t offer rebates, and some high-cost drugs may have limited rebate opportunities. Also, rebates can be subject to exclusions. For instance, if a member is paying 100 percent of the drug cost, no rebate may be provided.

Get the most out of your prescription benefits

At Blue Cross, we are dedicated to finding cost-effective pharmacy solutions. If you have questions regarding formularies or pharmacy solutions, reach out to your account representative for personalized guidance about saving on prescription drug costs.