You got a $500,000 rebate check from your PBM last year. It felt like a win. Here's what you didn't see.
The Mechanics of a "Rebate"
Your pharmacy benefit manager negotiated with drug manufacturers to place their products on your plan's preferred formulary tier. In exchange, those manufacturers paid rebates — calculated as a percentage of the drug's list price.
The higher the list price, the bigger the rebate. So your PBM literally had a financial incentive to favor expensive, brand-name drugs over cheaper alternatives. Not because they were more effective — because they generated more moolah.
Your PBM kept a portion of that rebate. Passed a teenie bit back to you. Called it a win.
What the $500K Check Actually Cost You
Meanwhile, your plan was paying inflated gross costs the whole time. Your employees' deductibles and coinsurance were based on those inflated list prices, not the net price after rebates. So your people paid more out of pocket too.
"The structure rewards high list prices and blocks cheaper generics and biosimilars from getting formulary access."
This Isn't a Gray Area
The FTC has called it out directly. The structure rewards high list prices and blocks cheaper generics and biosimilars from getting formulary access. It's a closed loop the PBM profits from at every stop.
The Fix
The fix isn't a better rebate guarantee — that just polishes the same broken structure. It's a contract that removes the incentive entirely:
- Pass-through pricing — net price drug costs, not gross.
- Flat admin fees — your PBM is paid for service, not for placement.
- Full audit rights on rebates, ingredient costs, and formulary decisions.
- A fiduciary obligation in writing — your PBM works for you, not the manufacturers paying them rebates.
The contract is either working for you, or against you. There is no third option.
— Tess
