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Rebates always sound appealing – who wouldn’t want to recoup money on a product that would be purchased anyway? But, when it comes to prescription drugs, rebates aren’t always as beneficial as they may seem on the surface. Sometimes, they can do more harm.
In the search for a pharmacy benefit manager (PBM), some employers can be distracted by the promise of receiving cash back just for covering medications employees need. It can feel like an automatic savings tool.
But rebates have their flaws.
The downside of drug rebates
Rebates often have a false positive effect. Just the idea of having a rebate makes it feel like the organization is getting a deal, but it could end up being more of a bait-and-switch situation. Building in a rebate can drive up the price of a drug on the front end.
In addition, some formularies tend to be structured on a pay-to-play basis, so drugs with the highest rebates often get added to the formulary, without considering lowest overall cost or clinical needs.
Further, if a designer drug has a sizable rebate, it can be tempting to get the brand name drug, rather than its generic counterpart that performs just as well. The generic might not offer a rebate, but it comes at a much lower price overall.
Waiting for a rebate can also have a negative impact on accounting since it typically takes 90 to 180 days or more to receive a rebate.
The upside
However, there is a positive aspect to pharmacy rebates.
Rebates are paid on brand medications; therefore, if a lower cost generic alternative isn’t available and an individual must take the brand medication, then an employer can structure their plan to maximize available rebates.
The key is to partner with a PBM that focuses on the overall lowest net cost and passes 100% of rebates back to the plan sponsor. This strategy aligns the goals and objectives of all involved.
At Oswald, our experienced team helps employers fulfill their fiduciary responsibilities by procuring and designing benefits that truly meet their needs.
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