POINT-OF-SALE-REBATES
WHO REALLY BENEFITS, AND WHO REALLY PAYS?
In recent months, Massachusetts policymakers have proposed requiring that prescription drug rebates be passed directly to patients at the pharmacy counter.
At first glance, this approach seems straightforward, smart, and fair: if manufacturers provide discounts, those savings should go directly to patients when they fill a prescription.
But, as with many changes to the prescription drug system, this proposal involves important trade-offs for union health plans and employer-sponsored coverage.
HOW REBATES WORK TODAY
Drug manufacturers often provide rebates in exchange for preferred placement on a health plan’s formulary. A formulary is the list of prescription drugs that a health plan covers, often organized into tiers that determine how much a patient pays for a medication.
Pharmacy benefit managers (PBMs) negotiate these rebates on behalf of employers, unions, and health plans and placement on a formulary is leverage used to lower costs.
Today, most of those rebate dollars are used by union health plans and employers to reduce overall plan costs, which means:
• Lower premiums for families
• Reduced employer or fund contributions
• More stable benefits over time
In other words, rebates are generally spread across the entire covered population and not just individuals taking a specific medication.
WHAT POINT-OF-SALE
REBATE POLICIES
WOULD CHANGE
Proposals like those under consideration in Massachusetts would require a significant portion of rebates to be applied at the pharmacy counter, lowering out-of-pocket costs only for patients filling certain prescriptions, rather than the entire health plan population.
This shifts how rebate savings are distributed.
Instead of being used to offset costs for all members, rebate dollars would be concentrated among individuals taking high-cost, brand-name medications.
Why manufacturers support point-of-sale rebate policies
It may seem counterintuitive, but large pharmaceutical manufacturers have been some of the strongest advocates for requiring rebates to be passed through at the pharmacy counter.
These policies allow manufacturers to maintain high list prices while using rebates to make their products appear more affordable at the point of sale, rather than lowering the underlying price of the drug. It also increases demand for specific drugs, which allows them to continually raise list prices.
Over time, this has contributed to a system where list prices and rebates rise together. Research has shown that drugs with the largest rebates often also have the highest list prices, which means the “discount” is built on top of an inflated starting point.
Point-of-sale rebate mandates reinforce that dynamic.
By lowering out-of-pocket costs only for drugs with significant rebates, these policies can:
• Encourage the use of high-list-price, brand-name drugs
• Increase manufacturers’ ability to compete through rebates rather than price reductions
• Undermine incentives to use lower-cost alternatives, including generics and biosimilars
In effect, manufacturers can preserve pricing power while shifting more of the cost burden onto employers, union health plans, and the broader insured population who ultimately finance those rebates through higher premiums and contributions.
The tradeoff for union plans and employers
The tradeoff for union plans and employers
For union health plans and employer-sponsored coverage, this creates a real financial tradeoff.
When rebate dollars are redirected away from reducing overall plan costs, plans may have fewer resources available to:
• Offset rising drug costs
• Keep premiums affordable
• Maintain current benefit levels
That can ultimately mean higher premiums, increased contributions, or pressure to reduce benefits over time.
It does not lower underlying drug prices
It is also important to distinguish between lowering what a patient pays at the pharmacy counter and lowering the overall cost of drugs.
Point-of-sale rebate policies do not reduce manufacturer list prices. Instead, they change how existing discounts are allocated within the system.
Policy decisions involve tradeoffs
As policymakers consider additional changes, including point-of-sale rebate mandates, it will be important to evaluate how these proposals interact with the new transparency and oversight structure that the Commonwealth enacted last session.
In the next installment of this series, we will examine another proposal under discussion in Massachusetts: changes to PBM contracting models, including so-called “spread pricing,” and what those changes could mean for plan sponsors and patients.