Pharmaceutical Manufacturer Rebates

Legislative & Regulatory Position

The rebate system is an important lever for ensuring the affordability of prescription medications and health care premiums for Americans. AMCP supports the use of a rebate system as one of many levers to help to control drug costs.   

A rebate is the return of part of the purchase price by the seller to the buyer. Rebates are used by a wide array of businesses including automakers, electronic companies, and pharmaceutical manufacturers to drive demand for their products. 

AMCP believes in competitive marketplace solutions to lower costs for Americans and recognizes the critical need to address the rising cost of prescription medications. Rebates represent a way to negotiate drug discounts and constitute an important tool to control drug costs.  When it comes to containing cost, competition is key. Policies that encourage greater competition and address the cost of drugs will help leverage negotiating tools to lower the costs of pharmaceuticals. 

 Manufacturer rebates are one of those solutions.  Managed Care Organizations (MCOs) use many strategies to help reduce overall costs to both the individual consumer and the health care system while ensuring continued access to lifesaving therapies. Pharmaceutical manufacturer rebates are a key strategy used to enhance price negotiations and ensure affordability of prescription medications and to  drive down overall costs.  

Rebates are also an important tool in value-based contracting (VBC). AMCP supports the health care system’s transition toward value-based care, as it is a primary strategy for improving patient care while managing costs. (1)  The implementation of effective, outcomes-driven, value-based contracting strategies remains a key focus area for AMCP and its members, and rebates play an important part in VBC. 

2019 Rebate Rule

In 2019, the Department of Health and Human Services (HHS) proposed a regulation to eliminate a safe harbor of the federal anti-kickback statute for manufacturer rebates to pharmacy benefit managers (PBMs). In examining the value of the rebate system, the primary purpose of this regulation was to reduce federal spending. However, the Centers for Medicare & Medicaid Services’ (CMS) Office of the Actuary estimated that this rule would increase total drug spending by $137 billion by 2029 and increase federal spending on Medicare Part D by $196.1 billion. (2) 

The Congressional Budget Office (CBO) analysis of this proposal also concluded that it would increase federal spending and Part D premiums.  As part of its budget projection, CBO estimated that the rule would raise federal spending by $177 billion between 2020 and 2029. Because Part D plan sponsors often use savings from rebates to decrease premiums, premiums would also increase under the proposed regulation, and since the federal government subsidizes 74.5% of Part D premiums, CBO concluded that this proposal would result in an increase in federal spending. (3)    

Implementation of the rebate rule faced several delays before the Inflation Reduction Act of 2022 effectively repealed it by extending the current moratorium until 2032. (4)

Pass-Through Rebates

A reason often cited as a major concern with the rebate system is the potential for PBMs to retain rebate dollars and not pass these savings to plans and consumers.  However, a 2019 study from the U.S. Government Accountability Office (GAO) found that 99.6% of the Medicare Part D prescription drug rebates negotiated by PBMs were passed through to drug plan sponsors. (5) 

There has also been discussion by health care decision-makers about passing the rebate directly to the patient at the point of dispensing. MCOs may choose to implement point of sale (POS) rebates; however, passing rebates at POS may not broadly lower overall drug costs. A 2023 study from Milliman indicates that value for an individual, as defined by the Milliman Medical Index, would decrease by 6% if such rebates were passed through to employees (6). The previously referenced CBO analysis that noted an increase in premiums and federal spending also noted that Medicare Part D plan sponsors utilize the rebates to lower premiums for all beneficiaries, so all patients receive the benefit of lower costs, rather than the select patients who utilize a rebated drug. 

Conclusion

Rebates encourage marketplace competition and further incentivize manufacturers to invest in differentiating products that are of high value to payers, prescribers, and patients. Rebates are also the building blocks of value-based contracting and help reduce out-of-pocket costs to patients, thereby increasing access to medications and improving patient health outcomes. However, rebates are just one piece to the much larger prescription price discussion and focusing solely on rebates may limit MCOs from developing strategies to holistically address the cost of medications. AMCP supports efforts that are focused on reducing health care costs by evaluating all aspects of the health care system.  

See Also:

AMCP Legislative and Regulatory Positions

1. The Best Price Requirement of the Medicaid Drug Rebate Program. AMCP Legislative and Regulatory Position. October 16, 2023. Available online: https://www.amcp.org/policy-advocacy/policy-resource-center/where-we-stand-position-statements/best-price-requirement-medicaid-rebate-program  

2. Center for Medicare and Medicaid Services. Proposed Safe Harbor Regulation. Available at: https://www.cms.gov/Research-Statistics-Data-and-Systems/Research/ActuarialStudies/Downloads/ProposedSafeHarborRegulationImpact.pdf. Accessed June 19, 2020.  

3. Congressional Budget Office. Incorporating the Effects of the Proposed Rule on Safe Harbors for Pharmaceutical Rebates in CBO’s Budget Projections—Supplemental Material for Updated Budget Projections: 2019 to 2029. Available at:  https://www.cbo.gov/system/files/2019-05/55151-SupplementalMaterial.pdf. Accessed June 16, 2020.  

4. "Text - H.R.5376 - 117th Congress (2021-2022): Inflation Reduction Act of 2022." Congress.gov, Library of Congress, 16 August 2022, https://www.congress.gov/bill/117th-congress/house-bill/5376/text  

5. Government Accountability Office. (2019). Two USDA agencies can enhance safeguards against project duplication and strengthen collaborative planning. (GAO Publication No. 19-498). Washington, D.C.: U.S. Government Printing Office. 

6. Bell, D., Gaal, M., Houchens, P. R., Liner, D. M., Mann, A., Naugle, A. L., & Norris, D. (2023, May 25). 2023 Milliman Medical Index. Milliman. https://www.milliman.com/en/insight/2023-milliman-medical-index#  

Revised October 2023
Approved by the AMCP Board of Directors, April 2021