As far as I know, the PBMI report is the only public source for benchmarking (1) manufacturer rebates to PBMs, and (2) PBM-employer relationships. A few fascinating highlights:
- There is an amazing diversity of PBM rebate structures, including per-prescription guarantees and percentage shares. Many smaller employers get no rebates.
- Rebates average $17 per 30-day brand-name retail prescriptions, although the range is broad.
- Employers receive almost 90% of manufacturers’ rebates to PBMs.
THE DATA
The PBMI survey data are collected from employers, not PBMs. The 2012-13 edition includes responses from 424 employers representing 3.7 million lives. The sample population of the PBMI survey is similar to the Kaiser/HRET survey that I discuss in A Look at Drug Benefit Design in 2012.
For the first time, the results are broken down, by employer size. Smaller employers (51% of respondents) are defined to have up to 5,000 lives (employees plus dependents), while larger employers (49%) are defined to have more than 5,000 lives. Survey methodology wonks can see the Profile of Respondents (page 5) for more details.
Just so you know, I was on the report’s Advisory Board, which meant that I was paid a small fee to review a pre-publication version of the report.
REBATES REVEALED
Pharmacy Benefit Managers (PBMs) make manufacturers of therapeutically comparable, brand-name drugs compete for placement on the plan sponsor’s formulary. A PBM will recommend preferred status on the formulary for those products that offer the most competitive pricing and rebates (along with efficacy and safety).
As plan sponsors, employers can negotiate whatever PBM rebate arrangements suit their purposes. As I highlighted in December’s news roundup, there are many benefit consultants who are more than happy to help employers make well-informed business decisions about PBM contracts.
Given this reality, it’s fascinating to see the real-world diversity in employers’ rebate arrangements with PBMs, as highlighted on page 28 of the PBMI report:
A few observations:
- Smaller employers are less likely to receive rebates than are larger employers. According to the survey, 11% of larger employers and 37% of smaller employers choose not to receive rebates. This decision presumably translates into lower per-prescription reimbursement amounts.
- More than half of larger employers negotiate a percentage share of actual rebates, either with or without a guaranteed minimum. According to Table 33 of the report, PBMs pass back to large employers 87% to 89% of rebates, regardless of form, received from brand-name pharmaceutical manufacturers. As far as I know, Medco Health Solutions was the only PBM to ever disclose this figure. (See Medco’s 2011 10-K filing, page 55.) In 2011, Medco reported having received $6.2 billion in rebates from brand-name pharmaceutical manufacturers. Only 12.2% of total rebates were retained by Medco, while 87.8% were passed back to Medco’s clients.
- Per Table 29, about one-third of plan sponsors receive flat guaranteed rebate amounts per script, averaging about $17 per 30-day retail brand script and about $47 per 90-day mail script. There were big differences in rebates negotiated by employers. For 30-day retail brands, the range of rebates was $4 to $36.
For more on PBM-manufacturer relationships and formulary development/management, see chapter 4 of the new 2012-13 Economic Report on Retail, Mail, and Specialty Pharmacies. The mathematical example on page 75 shows how rebates affect third-party payer net costs as funds flow through the distribution system.
