The Impact of Prescription Drug Rebates on Health Plans and Consumers

The pharmaceutical industry often points to manufacturer rebates as a reason why published data may substantially overstate both the level and the growth of prescription drug prices. Drug prices cited in the literature are generally either list prices or retail prices that ignore behind-the-scenes manufacturer rebates that offset some of what is actually paid. However, because these rebates are held as confidential information, and flow through the system in mysterious ways, there is little information on their precise effects on plan sponsors or consumers. This report sheds light on the nature and order of magnitude of these effects.

Key findings include:

• Both health plans and consumers have benefited from manufacturer rebates.
• Rebates have lowered government costs and contributed to lower premiums for plan enrollees.
• Consumer costs would be lowered further if rebates were routinely incorporated into retail prices, but this would likely raise premiums.
• While PBMs have gained financially from the rebate system, the notion that they divert a large share of rebates to excess profits is not supported by our analysis.