Thursday, January 24, 2013

A Peek at Manufacturers’ PBM Rebates

The Pharmacy Benefit Management Institute (PBMI) just released the 2012-2013 Prescription Drug Benefit Cost and Plan Design Report, a highly informative report on employer-sponsored pharmacy benefits. (Free download with registration.) The report is chock full o’ enlightening tidbits about employers’ PBM contracting and pharmacy benefit design decisions. A hearty Drug Channels “Thank You” to Takeda Pharmaceuticals North America for sponsoring the research.

As far as I know, the PBMI report is the only public source for benchmarking (1) manufacturer rebates to PBMs, and (2) PBM-employer relationships. A few fascinating highlights:
  • There is an amazing diversity of PBM rebate structures, including per-prescription guarantees and percentage shares. Many smaller employers get no rebates.
  • Rebates average $17 per 30-day brand-name retail prescriptions, although the range is broad.
  • Employers receive almost 90% of manufacturers’ rebates to PBMs.
The report will surely be a topic of conversation at PBMI’s 18th Annual Drug Benefit Conference in February.


The PBMI survey data are collected from employers, not PBMs. The 2012-13 edition includes responses from 424 employers representing 3.7 million lives. The sample population of the PBMI survey is similar to the Kaiser/HRET survey that I discuss in A Look at Drug Benefit Design in 2012.

For the first time, the results are broken down, by employer size. Smaller employers (51% of respondents) are defined to have up to 5,000 lives (employees plus dependents), while larger employers (49%) are defined to have more than 5,000 lives. Survey methodology wonks can see the Profile of Respondents (page 5) 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 report.


Pharmacy Benefit Managers (PBMs) make manufacturers of therapeutically comparable, brand-name drugs compete for placement on the plan sponsor’s formulary. A PBM will recommend preferred status on the formulary for those products that offer the most competitive pricing and rebates (along with efficacy and safety).

As plan sponsors, employers can negotiate whatever PBM rebate arrangements suit their purposes. As I highlighted in December’s news roundup, there are many benefit consultants who are more than happy to help employers make well-informed business decisions about PBM contracts.

Given this reality, it’s fascinating to see the real-world diversity in employers’ rebate arrangements with PBMs, as highlighted on page 28 of the PBMI report:

A few observations:
  • Smaller employers are less likely to receive rebates than are larger employers. According to the survey, 11% of larger employers and 37% of smaller employers choose not to receive rebates. This decision presumably translates into lower per-prescription reimbursement amounts.

  • More than half of larger employers negotiate a percentage share of actual rebates, either with or without a guaranteed minimum. According to Table 33 of the report, PBMs pass back to large employers 87% to 89% of rebates, regardless of form, received from brand-name pharmaceutical manufacturers. As far as I know, Medco Health Solutions was the only PBM to ever disclose this figure. (See Medco’s 2011 10-K filing, page 55.) In 2011, Medco reported having received $6.2 billion in rebates from brand-name pharmaceutical manufacturers. Only 12.2% of total rebates were retained by Medco, while 87.8% were passed back to Medco’s clients.

  • Per Table 29, about one-third of plan sponsors receive flat guaranteed rebate amounts per script, averaging about $17 per 30-day retail brand script and about $47 per 90-day mail script. There were big differences in rebates negotiated by employers. For 30-day retail brands, the range of rebates was $4 to $36.

For more on PBM-manufacturer relationships and formulary development/management, see chapter 4 of the new 2012-13 Economic Report on Retail, Mail, and Specialty Pharmacies. The mathematical example on page 75 shows how rebates affect third-party payer net costs as funds flow through the distribution system.


  1. Adam, why would employers choosing not to receive rebates lead to "lower per-prescription reimbursement amounts?" Not seeing the correlation. Thanks!

  2. Hey Adam,
    As always, thank you for the informative post! Where is your info on the "many consultants who are more than happy to help employers make well informed decisions about PBM contracts"?

  3. It's the difference between a post-transaction rebate vs. an ongoing discount. In theory, an employer can trade-off receiving rebates, which are paid infrequently and in large lump sums, for lower per-prescription costs throughout the benefit year. Like everything in life, the outcome will depend on what the plan sponsor negotiates.

  4. Google "pharmacy benefits consulting." The article in December's news roundup was written by such a consultant.

    For the record, I am not one of those consultants. My clients are pharmaceutical manufacturers.

  5. Always good content on this site, Adam.  Thanks for the link.  Quick question: rebates are but one source of PBM revenue, but do you have any clarity around other fees PBMs receive, like admin/service fees from manufacturers and data?  Similarly, even if rebate dollars are passed through to employers, what about other fees that PBMs charge employers like data service or other admin fees?   

  6. In the new pharmacy report, I outline the various sources of PBM revenues, in the section titled "PBM
    Compensation By Plan Sponsors" (starting on page 52). However, I'm not aware of any public data that quantifies the breakdown or provides averages for other fees.

  7. We all have seen the price increases when the PBMs get involved.  Example... Novartis has decided they want to limit distribution  on TobI to only a handful of ""specialty pharmacies". The price before this 5700.00 now the new price 6800. Thats an 1100 dollar price increase. Listen the manufacures are not stupid. When a pbm goes to them and say Well listen here,I will put your VERY special Brand name medication on Our formulary for the lowest copay tier. The manufactuer in turn says No problem how much you want. Now the drug may cost 300 dollars. Pbm say well we will take 50 bucks per rx .Manufactuer says sure and will now be laughing all the way to the bank. Now because of this rebate to the pbm , the cost of that medication will go to 400 dollars and every 6 months after will be increased by over 25 dollars. So the Pbms win and the manufacter certinly wins. Now years ago would not move up much in price but now its a great big scheme to defraud the healthcare system.