Prescription Medicine Rebates – Good or Bad?

Citrus Market Access Practice

May 2019

Last week we were conducting telephone interviews with Pharmacy Benefit Managers (PBMs) and Health Plan executives on behalf of a client who was considering a disruptive list pricing strategy in the US market.  We naturally went into great depth on the subject of drug rebates and contracting, and two things struck us  – drug benefit consultants don’t seem to care if improved therapies enter
a drug class offering good alternatives to competitors with more affordable prices. And second, none, we mean none of the key participants in the prescription drug marketplace are ready to confront the difficult task of fixing the legal and systemic issues now failing the US reimbursement and rebating system.  It is overly complex, lacking in transparency, and has moved far away from its intent which
is to allow customers with buying power and ability to move market share to garner good prices while also allowing the suppliers to segment the market by price. This allows payers to lower premiums

and help patients lower their out of pocket costs.  


As the gross-to-net pricing bubble (as it is called) expands and you hear various stakeholders in the
US system saying they are not benefitting, you have to ask…where is the money going?  We realized it’s like lost socks in the laundry.


PBM executives are very convincing when they say they pass at least 95% of their negotiated rebates on to Managed Care Organizations (MCOs). Health Insurers (Insurers) are equally convincing when suggesting PBMs are not offering full disclosure, and they are trapped in their addiction to
rebate guarantees.  


Interestingly, when you ask both PBM and Insurers if cases like the large WAC price cut in the PCSK9 case is good, they offer a resounding “Yes”…over the longer term.  We believe they inherently want to negotiate the lowest possible net prices for drugs for their various constituents, but they admit moving away from this current system will take time. And watching Congress interrogate Pharma and PBM execs over the past few months, it doesn’t appear legislators are going to take swift action, realizing the system fix is a major overhaul. However, the Trump administration led by Alex Azar in the US Department of Health and Human Services (HHS) are indifferent to the pain, they are going to force action wherever possible.


The drug makers, PBMs, Insurers and Distributors have all benefited from this perversely evolved system and should now work together to unravel the tangled mess.  Citrus Access™ offers these three simple tenets for consideration by the stakeholders in the US health system as we

ponder how to reshape the US reimbursement system in the coming years:


  • Find a way to allow drug makers to discount and contract their products. Killing the rebate safe harbor overnight is short-sighted, as discounting is good for our health system. Segmenting a market by price is also good, a fundamental dynamic allowing innovators to
    capture full value
    for their products while offering affordability in the supply chain where and when needed most.  And, it will not leave money on the table for manufacturers, allowing them
    to invest in future breakthroughs.


  • Eliminate the Rebate Trap.  The evolution of contracting with rebates has led payers to focus on a rebate revenue stream in a detached manner from the notion of procurement-derived best net prices.  PBMs and their customers should avoid over-committing to single brands when improved alternatives may come along soon with better pricing. To the point of Tenet 1above – create a system that allows drug makers to offer discounts in return for formulary incentives, and make sure these discounts are confidential and not visible to their competitive drug makers in a category, otherwise the whole scheme doesn’t work and you wont get great prices. 


  • Harmonize the legislative proposals emerging from Trump’s Blueprint to Lower Prescription Drug Pricing with future rebate legislation.  The Part B International Pricing Index (IPI) Model, Part D proposals, and rebate safe harbor fixes are all fundamental enhancements to the US Rx drug reimbursement system that should be designed with each other in mind.


     Citrus Access™ is a division of Citrus Global Healthcare Communications Group

© 2021 CiTRUS Health Group

All Rights Reserved