10 Smart Questions Self-Funded Plan Sponsors Should Be Asking
Ensure Proper Rebate Benefits for Your Company
Prescription drug costs are at an all-time high with no end in sight for both self-funded plan sponsors and the participants they represent. 79% of respondents in a recent Kaiser Family Foundation Health Tracking Poll felt that the cost of prescription drugs was unreasonable.
To help offset the increase in spend, plan sponsors are finding relief in prescription drug rebates. The Journal of the American Medical Association explains “rebates are a form of price concession paid by a pharmaceutical manufacturer to the health plan sponsor or the pharmacy benefit manager working on the plan’s behalf.” The publication says proponents for prescription drug rebates argue that the vigorous negotiations that go along with rebate plans help lower overall drug costs.
Rx Rebates – Shrouded in Mystery
The conversation around prescription drug rebates is often surrounded by complex jargon. It can be hard to determine if your organization is receiving all the possible value of a prescription drug rebate, especially if your plan’s contract terms are shrouded in mystery. Many pharmacy benefit managers (PBM) and plan providers are not transparent with plan sponsors about their actual rebate return. Even when a provider promises a 100% rebate return, many plan sponsors don’t know if that actually happens. Knowing which questions to ask and what contract language to require is key for self-funded plan sponsors to truly receive all the benefits of prescription drug rebates.
We’ve curated a list of reliable resources for you to learn more about how rebates work, their evolution, and their role in reducing prescription drug costs.
Top 10 Questions About Your Plan’s Prescription Drug Rebates
1. Do prescription drug rebates matter to a self-funded plan sponsor’s bottom line?
Rebates are becoming a more prominent way for plan sponsors to reduce their prescription dollar spend. While there are many industry dynamics, rebates can drive down the overall cost if truly passed through to their plan. Rebates on some medications are documented to be as high as 75% of the medication list price but may be more than 90% on others based on known PBM formulary dynamics. Overall, rebates are approaching 30% of the gross costs of prescription drugs for self-funded plan sponsors.
Recommendation: Work with a PBM provider that uses rebates as a tool to promote the lowest net cost of medications.
2. What is the value of each rebate?
There are many contract dynamics within a plan that can impact rebate value, including how the rebate is defined and how the guarantee is calculated. Plan utilization, drug category and purchase type also affect the plan sponsor’s rebate value.
- Drug Category
- Purchase Type
- 30-Day Retail
- 90-Day Retail
- Mail Order
The next way rebate value is calculated is by looking at the plan design. Other factors that play into the PBM rebate guarantees include the difference in copays, tier structure, step therapy, and formulary strategy.
Recommendation: Plan sponsors should clearly understand their rebate contract language and take special consideration during their implementation and review periods. Ask your PBM account executive to model a few scenarios based on plan design changes so you can see the difference in guarantees and weigh your options.
3. Can self-funded plan sponsors receive rebates on generic drugs?
It is not common practice for a PBM to offer a rebate guarantee on generic medications. Rebates on generic drugs from manufacturers are rare.
Recommendation: Ensure your contract language incentivizes generic utilization through a detailed review.
4. Why is it important to negotiate contract terms to include rebates for both brand and generic scripts?
Contract terms that encourage brand and generic medications takes away the PBM’s ability to manipulate utilization for specific drugs. This allows plans to continue to increase their generic medication utilization while not having to worry about a loss in rebate guarantees.
Recommendation: Plan sponsors should mandate that any value collected from manufacturers exceeding the guarantee is returned to members.
5. How do self-funded plan sponsors receive rebates?
Some rebates are only received if the rebate qualifies. The definition of what classifies as a rebate is another important factor to consider. PBMs are notorious for finding any possible way to avoid paying a rebate guarantee. Sometimes PBMs designate that claims are ineligible or state that the file format is incorrect.
Recommendation: Ensure your contract language includes clear language around how rebates are delivered and how any discrepancies will be handled. Watch the list of claims types the contract explicitly excludes from rebates. Exclusions may result in rebate value being left with the PBM.
6. Whose job is it to make sure the self-funded plan sponsor receives its contracted prescription drug rebates?
It is essential that a system of checks and balances is established. This will ensure rebates are paid appropriately and accurately.
Recommendation: It is best practice to make sure discounts and rebates are paid accurately to your plan for the life of the PBM contract. This can be achieved through auditing rebates and for the protection of plan sponsors. Independent consultants can also be hired to audit the PBMs contract with manufacturers to ensure plan sponsors are truly receiving 100% of the rebate value.
7. Will reform for prescription drug rebates ever happen?
It seems unlikely that rebate reform will occur anytime soon. Without rebates or viable replacement, self-funded plan sponsors would be unable to afford the high cost of medications. Without an alternative design to capture the current value from manufacturers, medication costs are likely to increase.
Recommendation: Ensure your PBM partner is versed in the rebate reform scene and is prepared to act on your behalf. They should be well-suited to accommodate changes in the market around rebates.
8. What is the first step to ensuring that your self-funded plan sponsor receives all of its contracted prescription drug rebates?
Review your PBM contract on an annual basis. The contract language is critical when it comes to rebates. Your contract details should not be a secret. Take the time to review the specifics, ask questions and take note of sections that you may need in the future for a quick “at your fingertips” reference.
Recommendation: Let your plan provider do the heavy lifting. Work with a provider that has 100% financial and contractual transparency for your organization to know with confidence that rebates are received in their entirety. Plan sponsors should benefit from oversight that ensures rebates are paid appropriately and accurately based on the plan’s unique design. It is a system of checks and balances.
9. What does transparency really mean?
Transparency means something different to every organization.
Recommendation: Work with a vendor that will share and explain their PBM contract without hesitation and has clearly defined language regarding your self-funded plan’s rebates.
10. What about rebate value for plan participants?
Rebates are collected from manufacturers on only 7-10% of prescription drugs. For plan participants on these medications, their out-of-pocket costs are based on the medication’s gross cost when the net (after rebate) may be much lower.
Most self-insured plan sponsors are paying 80-90% of their plan’s total cost of prescription drugs. The plan should retain most or all of the rebate value. For a fee, many PBMs can set-up point of sale rebates so the rebates are factored in before the plan participant incurs an out-of-pocket cost. Rebate value shared with the plan participant will result in lower rebate value to the plan sponsor, and patient cost-share adjustments may be needed.
Recommendation: Study how point-of-sale rebates would impact your plan and its participants. Work with a PBM that has the capability of sharing rebate values with plan participants and determine if it works for your plan.
Bonus Question: Where can self-funded plan sponsors find prescription drug rebate solutions and guidance?
You can look to a pharmacy benefit coalition like National CooperativeRx. We are known throughout the United States for honesty and openness within the industry. We are a not-for-profit cooperative, organized, owned, and governed by our members. Our values and mission are aligned with our members’ best interests and we strive to be a trusted resource in this often complicated landscape. Learn more about how the process works and how we can lower your pharmacy benefit expenses through a service-driven approach, industry expertise, and clinical innovations.
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