Since 1991, rebates from drug manufacturers to PBMs have safe harbor protection, they are exempt from federal rules prohibiting kickbacks, and they can operate virtually unchecked. Some might say herein lies the problem.
In recent years, the lack of transparency has come to be scrutinized by federal and state regulators and other watchdogs. For example, a recent study by the University of Southern California shows that there is a direct correlation between the list and rebate prices of a drug. The study states succinctly, “On average, a $1 increase in rebates is associated with a $1.17 increase in the list price.”
In other words, there is no actual cost reduction because the drug maker artificially raised the list price on the back end, so by the time the rebate comes around, the cost to the employer doesn’t decrease. The employer pretty much has to pay the list price. And often, consumers are stuck with higher premiums, copays, or deductibles to help offset the high sticker price. In this scenario, the only beneficiaries of the rebate are the drugmaker and the PBM with additional profits.
