Rebate Sharing: A Way to Lower Drug Costs or Sleight of Hand?

Feb 27, 2018Independent Pharmacy Insights, PBM, Pharmacy Growth, Pharmacy Insights

What if seniors who enrolled in Medicare’s Part D prescription benefit were allowed to participate in the same prescription drug rebates that PBMs negotiate on behalf of insurers?

In an effort to make good on his campaign promise to lower prescription drug prices, President Trump appears to be looking at just this type of scenario (1).

But will rebate sharing result in true savings, or is it really just sleight of hand? And, more importantly, what are some of the opportunities and threats that could grow from this possible adjustment in Medicare’s Part D prescription benefit?

Unveiled in the Trump Administration’s 2019 budget proposal earlier this month are several provisions that take aim at high prescription drug costs, including several adjustments in how prescription medications are processed and paid for under Medicare and Medicaid including rebate sharing. Some other notable adjustments in the proposal include:

  • Ensuring that low-income seniors on Medicare don’t pay for generics
  • Capping out-of-pocket costs for Medicare Part-D members who pass through the coverage gap (doughnut hole)
  • Moving some Part B drugs such as chemotherapy and rheumatoid arthritis infusions under the Part D umbrella to encourage price negotiations
  • Creating a pilot program of five states that will test the efficacy of allowing state Medicare programs to negotiate pricing with manufacturers, thus creating their own state-based formularies (2)

What are Rebates and How Do They Work?

Rebates are negotiated by Pharmacy Benefit Managers (PBMs) on behalf of insurers, who then pass the savings down to beneficiaries through lower premiums. PBMs have two main objectives:

  1. Reduce pharmacy drug spending by utilizing their large network of retail and mail pharmacies to negotiate competitive pricing
  2. Improve patient outcomes through greater access to prescription medications

In theory, the PBM’s job is to work as an intermediary between manufacturers and insurers, ensuring everyone receives a fair cost on the medications — including patients like seniors on Medicare’s Part D.

PBMs defend their processes and claim their large networks provide them with stronger bargaining power to negotiate lower prices for clients. Tools and/or processes to track these savings are nearly non-existent. This makes the actual impact of the savings hazy at best.

There are no clear lines that follow the savings from the manufacturer, to the PBM, on to the insurer and, ultimately, down to the consumers. PBMs are less than forthcoming regarding their processes or actual numbers related to negotiated rebates and discounts (3).

What is Rebate Sharing and How Would It Work?

PBM negotiated rebates are currently passed on to the insurers. Insurers claim these rebates allow them to help keep premiums lower, a benefit that is passed on to beneficiaries.

Rebate sharing would move these discounts (or a portion of these discounts) over to seniors who buy drugs through Medicare Part D, allowing them to effectively pay less out-of-pocket costs when purchasing these drugs.

So, What’s The Problem?

The potential problem lies in premium costs.  If premiums are being reigned in and kept more affordable through the discounts and rebates negotiated by PBMs, then it is fair to assume once those rebates are transferred over to this new category of beneficiaries, premiums could potentially rise, moving the savings seen through the rebate sharing over to the premium hikes.

Closing Thoughts

Independent pharmacies are already in fierce competition with big-box retail pharmacies –– a competition that dictates additional prescription price reductions, lowering an already deeply cut profit margin.

True medication cost reduction has the potential to benefit both the patient and the pharmacy by lowering overall expenses when providing and purchasing prescription medications. But the approach of rebate sharing doesn’t reduce the cost of medication in any way. It simply shifts the cost from one column to another. Like daylight savings time, the number of hours in a day are still twenty-four, we just take one hour from the top and move it to the bottom.

A better approach to lowering drug costs might be to put processes in place that require greater transparency from PBMs. This could allow for real savings to be tracked and more accurate (and fair) pricing to be passed on to customers.

Do you have any thoughts on rebate sharing? How do you think this potential disruptor might affect your pharmacy? We’d love to know and may even share those experiences in future blog posts, white papers, and e-books. If you’d like to add your experience, please contact

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