Pharmaceutical Manufacturer Rebates
Where We Stand
The rebate system is an important lever for ensuring affordability of prescription medications and health care premiums for Americans. AMCP supports the use of a rebate system as one of many levers to help to control drug costs.
A rebate is the return of part of the purchase price by the seller to the buyer. Rebates are used by a wide array of businesses including automakers, electronic companies, and pharmaceutical manufacturers to drive demand for their products.
AMCP believes in competitive marketplace solutions to lower costs for Americans and recognizes the critical need to address the rising cost of prescription medications. Rebates represent a way to negotiate drug discounts and constitute an important tool to control drug costs. When it comes to containing cost, competition is key. Policies that encourage greater competition and address the cost of drugs will help leverage negotiating tools to lower the costs of pharmaceuticals.
The complex nature of healthcare reimbursement has led to the creation of equally complex solutions to manage costs. Manufacturer rebates are one of those solutions. Managed Care Organizations (MCOs) use many strategies to help reduce overall costs to both the individual consumer and the health care system while ensuring continued access to lifesaving therapies. Pharmaceutical manufacturer rebates are a key strategy used to enhance price negotiations and ensure affordability of prescription medications and to drive down overall costs.
Rebates are also an important tool in value-based contracting (VBC). AMCP supports the health care system’s transition toward value-based care, as it is a primary strategy for improving patient care while managing costs. The implementation of effective, outcomes-driven, value-based contracting strategies remains a key focus area for AMCP and its members, and rebates play an important part in VBC.
In 2019, the Department of Health and Human Services (HHS) proposed a regulation to eliminate a safe harbor of the federal anti-kickback statute for manufacturer rebates to pharmacy benefit managers (PBMs). In examining the value of the rebate system, the primary purpose of this regulation was to reduce federal spending. However, the Centers for Medicare & Medicaid Services’ (CMS) Office of the Actuary estimated that this rule would increase total drug spending by $137 billion by 2029 and increase federal spending on Medicare Part D by $196.1 billion. (1)
The Congressional Budget Office (CBO) analysis of this proposal also concluded it would increase federal spending and Part D premiums. As part of its budget projection, CBO estimated that the rule would raise federal spending by $177 billion between 2020 and 2029. Because Part D plan sponsors often use savings from rebates to decrease premiums, premiums would also increase under the proposed regulation, and since the federal government subsidizes 74.5% of Part D premiums, CBO concluded this proposal would result in an increase of federal spending. (2)
Another study funded by the National Institute for Health Care Reform examined the impact of drug rebates on health plans and consumers and concluded that rebates reduced total retail drug spend by 21% and that the benefit extended to both payers and consumers. (3)
A reason often cited as a major concern with the rebate system is the potential for PBMs to retain rebate dollars and not pass these savings to plans and consumers. However, a Pew Trust survey of health plans and PBMs found that PBMs passed through 78% of manufacturer rebates to health plans in 2012 and 91 percent in 2016. (4)
The 2019 safe harbor rebate proposed rule was finalized in November 2020 with an effective date of January 1, 2022 and an accompanying statement (in contrast with other analyses) from the Secretary for Health and Human Services that this provision would not increase costs. Currently, as a result of a legal challenge, implementation of this regulation has been delayed until January 1, 2023. Given the previous studies and analyses, AMCP opposes this regulation and remains concerned that this rule could result in unintended consequences such as higher costs for patients, payers, and providers.
There has also been discussion by health care decision-makers about passing the rebate directly to the patient at the point of dispensing. MCOs may choose to implement point of sale (POS) rebates; however, passing rebates at POS may not broadly lower overall drug costs. A study from Milliman indicates that in 2016, 81% of Part D prescriptions were for drugs not associated with a manufacturer rebate (5). Additionally, the previously referenced CBO analysis that noted an increase in premiums and federal spending also noted that Medicare Part D plan sponsors utilize the rebates to lower premiums for all beneficiaries, so all patients receive the benefit of lower costs, rather than the select patients who utilize a rebated drug. (2)
Rebates are a piece to the much larger prescription price discussion and focusing solely on rebates will limit MCOs from developing strategies to holistically address the cost of medications. Rebates encourage marketplace competition and further incentivize manufacturers to invest in differentiating products that are of high value to payers, prescribers, and patients. Rebates are also the building blocks of value-based contracting and help reduce out-of-pocket costs to patients, thereby increasing access to medications and improving patient health outcomes. AMCP supports efforts that are focused on reducing health care costs by evaluating all aspects of the health care system.
- Center for Medicare and Medicaid Services. Proposed Safe Harbor Regulation. Available at: https://www.cms.gov/Research-Statistics-Data-and-Systems/Research/ActuarialStudies/Downloads/ProposedSafeHarborRegulationImpact.pdf. Accessed June 19, 2020.
- Congressional Budget Office. Incorporating the Effects of the Proposed Rule on Safe Harbors for Pharmaceutical Rebates in CBO’s Budget Projections—Supplemental Material for Updated Budget Projections: 2019 to 2029. Available at: https://www.cbo.gov/system/files/2019-05/55151-SupplementalMaterial.pdf. Accessed June 16, 2020.
- Roehrig, C. The Impact of Prescription Drug Rebates on Health Plans and Consumers. April 2018. https://altarum.org/sites/default/files/Altarum-Prescription-Drug-Rebate-Report_April-2018.pdf. Accessed June 19, 2020.
- Pew Trust. The Prescript Drug Landscape, Explored. March 2019. https://www.pewtrusts.org/en/research-and-analysis/reports/2019/03/08/the-prescription-drug-landscape-explored#:~:text=A%20survey%20of%20health%20plan%20and%20PBM%20personnel%20found%20that,and%2091%20percent%20in%202016. Accessed June 19, 2020.
- Johnson NJ, Mills CM, Kridgen M. Milliman Report. Prescription Drug rebates and Part D drug costs. July 16, 2018. Available at: https://www.ahip.org/wp-content/uploads/2018/07/AHIP-Part-D-Rebates-20180716.pdf. Accessed June 16, 2020.
Approved by the AMCP Board of Directors, April 2021