As far as I know, the PBMI report offers the only public benchmarking data on manufacturer rebates to pharmacy benefit managers (PBMs). A few highlights:
- Employers use a wide variety of rebate structures, including per-prescription guarantees and percentage shares. Nearly one-third of smaller employers get no rebates.
- Rebates average $17 per 30-day brand-name retail prescriptions. Surprisingly, rebates were comparable for both large and small employers.
- On average, PBMs pass more than 80% of rebates back to employers.
HOBBITS AND GIANTS
The PBMI survey collects data from employers, not PBMs. The 2013-14 edition includes responses from 478 employers, accounting for 22.5 million lives. The sample population of the PBMI survey is similar (but smaller) to that of the Kaiser/HRET survey that I discuss in How the Fourth Tier Coinsurance Boom Drives Copay Offset Programs.
PBMI presents the results by employer size. It defines smaller employers (56% of respondents) as having up to 5,000 lives (employees plus dependents), and it defines larger employers (44%) as having more than 5,000 lives. Methodology wonks can see the Profile of Respondents (on page 5of the report) for more details.
Just so you know, I was on the report’s Advisory Board, which meant that I was paid a small fee to review a pre-publication version of the completed research.
THE DESOLATION OF REBATES
PBMs can use the formulary to extract price concessions from manufacturers of brand-name drugs. PBMs force manufacturers of therapeutically comparable brand-name drugs to compete for placement on the plan sponsor’s formulary, or even avoid being cut from the formulary. A PBM will recommend preferred status on the formulary for those products that offer the most competitive pricing and rebates, along with evidence-based efficacy and safety. The rebates that PBMs share with employers reduce the plan sponsor’s total net cost per prescription.
Nearly half of large employers—those with 5,000 or more covered lives—receive flat guaranteed rebate amounts per script. (See chart below.) Smaller employers are less likely to negotiate these guaranteed rebates. Many employers negotiate a percentage share of actual rebates, either with or without a guaranteed minimum. However, large employers are three times as likely as smaller employers to negotiate a guaranteed minimum.
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Some payers receive no rebates, perhaps choosing to negotiate lower per-prescription reimbursement amounts. Smaller employers are much more likely than larger employers to receive no rebates. As the chart above shows, only 7% of large employers receive no rebates, compared with 29% of smaller employers.
Rebates average: (1) about $17 per 30-day brand-name retail script, (2) about $36 per 90-day retail brand-name script, and (3) about $56 per 90-day mail script. The chart below shows these average rebate amounts converted to 30-day equivalent prescriptions. There was no significant difference between the amounts received by large vs. small employers. The PBMI averages amount to slightly less than a 10% discount off the manufacturer’s price.
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Rebates reduce a third-party payer’s net prescription costs as funds flow through the channel. For retail prescriptions, PBMs pass back to employers more than 80% of rebates, regardless of form, received from brand-name pharmaceutical manufacturers. (See page 38 of the PBMI report.) Of employers receiving a percentage share without a guarantee, more than one-third receive 100% of the rebates. The rebate share for mail prescriptions is lower.
For more on PBM-manufacturer relationships and benefit design, stay tuned for the forthcoming 2013-14 Economic Report on Retail, Mail, and Specialty Pharmacies, available in late January.
And keep reading Drug Channels—it’s hobbit forming. (Sorry about that…)