Don’t get trapped by PBMs’ rebate labeling games: Managed Care magazine

Filed Under: Costs, Health plans, Patients

“’What’s in a name? That which we call a rose by any other name would smell as sweet,'” Linda Cahn writes over at Managed Care magazine, explaining the many ways pharmacy benefit managers collect money in their contracts. “Juliet was speaking of Romeo, and expressing a universal truth. Unfortunately, pharmacy benefit management companies (PBMs) would like the world to believe otherwise, at least when thinking about PBMs’ rebates. For them, calling a rebate by another name means that it is something other than a rebate. Therefore, PBMs need not pass through any third-party money that they choose not to call a rebate. Accordingly, it is imperative that health plans and other PBM clients understand PBMs’ rebate labeling games. Moreover, it is critical that these clients learn how to end all rebate manipulations, since PBMs are siphoning off billions of dollars of clients’ potential savings, and clients aren’t even aware that they are doing so.  Most PBM/client contracts contain core language in which PBMs define the term ‘rebates’ and agree to pass through all or most rebates to their clients. “Here are three examples:

  • Rebate means the rebates, including base and market share rebates, collected by the PBM in its capacity as a group purchasing organization for the client from various pharmaceutical companies that are attributable to prescriptions dispensed to members, but specifically excluding any rebates paid with respect to utilization of specialty drugs.
  • Rebates means retrospective rebates or discounts which are paid to the PBM pursuant to the terms of a contract with a pharmaceutical manufacturer and directly attributable to the utilization of certain pharmaceuticals by members.
  • Rebates do not include administrative fees, software, or data fees paid by pharmaceutical manufacturers to PBM. The PBM may receive fees or other compensation from pharmaceutical companies for services rendered and property provided to pharmaceutical companies, including without limitation administrative fees not exceeding three percent of the AWP [average wholesale price] of the products dispensed across PBM’s book of business. In addition, the PBM’s mail service and specialty pharmacies receive discounts or rebates from pharmaceutical companies that are attributable to or based on product purchases by the PBM’s mail order or specialty pharmacies. The term rebates… does not include the fees, compensation, and discounts described in this section.

“This language may appear benign, but it is anything but. If a PBM enters into contracts with drug manufacturers and chooses to give rebates another name — like administrative fees or health management fees or grants — the PBM will arguably eliminate its obligation to pass through the financial benefits to its clients.” Linda Cahn, Don’t Get Trapped By PBMs’ Rebate Labeling Games,” Managed Care magazine.