Manufacturer Rebate

A manufacturer rebate is a payment a pharmaceutical company sends to a PBM (and often further downstream to a health plan or employer) in exchange for placing that manufacturer's drug on a preferred formulary tier. Rebates are paid after the drug is dispensed, typically on a per-prescription or per-unit basis, and can range from a few dollars to several hundred dollars per script.

Rebates are one of the most opaque parts of the prescription drug supply chain. The manufacturer's list price is publicly known; the rebate amount usually is not. The PBM negotiates the rebate with the manufacturer, then keeps a share and passes some percentage back to the plan sponsor — the exact split is dictated by the PBM contract and varies widely. Traditional spread-pricing PBM contracts often let the PBM keep a much larger share of the rebate than the plan sponsor realizes. Pass-through and transparent PBM models require the PBM to disclose the full rebate and pass 100 percent (or a defined high percentage) to the plan. The 340B drug pricing program layers additional complexity because covered entities receive discounts that interact with rebates in specific ways. Federal scrutiny of rebate structures has increased under the Inflation Reduction Act and various state transparency laws.

The takeaway: if you're a self-funded employer, your PBM contract should specify the exact rebate pass-through percentage in writing, and your annual PBM audit should verify that percentage against actual manufacturer rebate receipts. Anything less is money left on the table.