SUMMER  2001 
Volume 6 / Number 3

Rebate Contracting 101

Susan Peard, Principal, Pharmacy Outcomes Specialists
Wendy Smith, Bids & Contract Coordinator, Touchpoint Health Plan

Susan Peard began this session by talking about the different types of payments PBM's receive. These include access rebates (3-5% of drug cost for placement on formulary), market share rebates (5-40% of drug cost for increased market share) and data fees (3-5% for payment for data). For the most part, access rebates and market share rebates are passed on to the plan sponsor. However, data fees are normally not shared with the plan sponsor.

Because of these different types of payments, Peard noted that at times PBM and employer goals are misaligned. In one example, she compared drug A with a data fee of $3.58 and a net cost of $119.43 (after rebates) with drug B, with a data fee of $2.10 and a net cost of $70.04. Drug B is the best choice for the employer because of the lower net cost. However, drug A is the best choice for the PBM because of the higher data fee.

Peard identified a number of other issues that it is important to understand about formularies and rebates. These include demanding full disclosure of rebate arrangements, audit rights, and a performance standard. Plan sponsors should review the PBM's formulary to see if it is encouraging more expensive drugs. She noted that rebate arrangements are not confidential, that in fact most rebate contracts contain language from the manufacturer requiring the PBM to share arrangements with clients and clients with customers.

Wendy Smith talked about the potential benefits of contracting directly with manufacturers for rebates. Since moving to direct contracting, Touchpoint's rebates have increased from $0.75 (1998) to $3.08 (2000) across all prescriptions. To make this arrangement work best, she suggests you must be a large employer or HMO with a relatively controlled formulary, have the ability to shift market share and have the ability to contract independently from your PBM. Staff resources needed include a clinical pharmacist, analytical support, dedicated technical support and staff with negotiation expertise.

Smith identified many of the key issues an organization must identify and deal with in developing its own formulary and negotiating rebate agreements. Obviously, not every plan sponsor can develop their own formulary and negotiate their own rebate agreements. However, for those that are able to, the financial rewards can be significant.

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