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How Prescription Drug Rebates Reduce Costs

Fact: Pharmacy benefit managers (PBMs) leverage competition and negotiate rebates from drug manufacturers to lower drug costs.

How Do Prescription Drug Rebates Reduce Costs for Patients?

Manufacturers choose to negotiate discounts on drug prices with PBMs using rebates. These rebates are used by payers to reduce premiums and out-of-pocket costs for patients. 


Some drug companies try to shift blame for higher prices by blaming the PBMs who negotiate rebates and discounts on behalf of employers, unions, and government programs that offer coverage.


This makes no sense. Would anyone believe a TV manufacturer if it said its price hikes were due to aggressive discounting and rebating by a big box retailer?


Furthermore, a new study debunks the notion that the prices drugmakers set are contingent on the rebates they negotiate with PBMs.  Ironically, many higher priced drugs involve little or no such rebates.


In the commercial market, PBMs help payers implement Point-of-Sale (POS) rebates. However, POS rebates are unworkable in Medicare Part D and pose risks that could destabilize the program. In fact, they are allowed in Part D and have been tried unsuccessfully in the past. They lead to significant adverse selection and expose plans to other risks, such as False Claims Acts violations if they incorrectly estimate the size of rebates.  

  • Typically, 90 percent of rebates are passed back to the plan, employer, union, or government payer to lower premiums or other cost sharing.
  • If one PBM is not getting the best deal, the employer or plan sponsor will find another PBM that will. 
  • Only 1-in-5-voters buy the drugmakers’ “rebates cause high prices” message.
  • Consumers are well aware that drug companies set drug prices, and they know higher prices mean higher out-of-pocket costs.
  • Premiums would rise by over 50 percent if Medicare Part D plans are prohibited from negotiating rebates on brand drugs.

Increasing Prices Set by Drugmakers Not Correlated With Rebates

As the debate over high drug prices has intensified, drugmakers have attempted to shift focus away from the increasing prices they set towards the price concessions (rebates) that they negotiate with pharmacy benefit managers (PBMs), entities that work on behalf of employers, unions, health plans,...

QuintilesIMS Institute Report: PBMs Reduce Cancer Drug Costs

The growth in the price of cancer medicines in the U.S. averaged 3.6 percent last year, a drop from 4.7 percent in 2015, after accounting for rebates and discounts that drug makers paid to health insurers, according to a new IMS Institute report.

Pharmacy Benefit Managers: Part of the solution to high drug prices

As policymakers consider new ways to reduce prescription drug costs, they should start by rejecting schemes to undercut the cost-savings tools widely used by employers, unions, health plans, and popular, affordable programs like Medicare Part D. Specifically, lawmakers must protect the ability of the employers...

PBMs: Protecting Consumers and Employers From High Drug Prices

The competition-based PBM approach has been highly successful, yielding broad access to prescription drugs and 90% consumer satisfaction rates. A recent study shows PBMs are on track to reduce prescription drug coverage costs by $654 billion over the next decade for government and commercial payers.

IMS Health: PBM-Negotiated Discounts Reduce Drug Prices

Heightened efforts by health plans and pharmacy benefit managers to limit price growth, resulted in concessions that reduced price increases on an estimated net basis to 2.8 percent, significantly lower than in prior years.

Drugmakers’ Share of Spending Fall, Industry-Funded Report Says

“The report “shows something that we’ve been saying all along: that payers have been demanding and getting bigger and bigger discounts and rebates as drug prices rise,” said Mark Merritt, CEO of the Pharmaceutical Care Management Association, an industry association that represents PBMs. While individual...

Americans for Tax Reform: Medicare Part D Already Works

Medicare Part D is an example of the free market ensuring lower costs and greater access to care. Preventing government bureaucrats from interfering with private-sector negotiations allows pharmacy benefit managers (PBMs), pharmaceutical manufacturers, and pharmacies to negotiate lower drug prices and reduce overall healthcare costs...