Rebate Credit Dynamics

Offering rebates has been a pricing strategy for manufacturers of brand-named prescription drugs for decades. The explosion of rebate value has happened over the last 10-12 years as pharmacy benefit managers (PBMs) introduced formulary exclusions. For prescription drugs such as insulin, there is no question the increase in rebate value has come with a significant increase in the last price of the medication.

Rebates are a negotiating tool PBMs use to drive a lower net price of pharmaceutical products by creating competition. In many instances, rebates have led to higher list prices as well. In certain pharmacy benefit plans, for example, High Deductible Health Plans without Point-of-Sale rebates, patients may pay more for medications due to higher list prices. Some PBMs keep a portion of rebate revenue. Rarely mentioned, PBMs use projections of future rebate value in pricing proposals to show pricing advantages. What is not shown in these proposals is how much prescription drug prices will increase to achieve those rebates.

Rebate credit language is contract language that allows a PBM to take credit against predetermined rebate guarantee value when utilization in a prescription drug plan switches from a higher list, higher rebate drug to a lower list, lower rebate drug. Allowing a PBM to take rebate credit value promotes a marketplace where list prices are lower. Lower list prices are better for patients in coinsurance and high deductible plans. Rather than waiting for rebates, plan sponsors experience lower list prices at the point of sale and experience a time value of money benefit.

In our Master Contract, National CooperativeRx has a robust definition for rebates and began allowing rebate credits in 2024. Changing pricing dynamics for a number of insulins as well as for Humira and its biosimilars, have offered plan sponsors and their participants a more timely opportunity to benefit from changing pricing dynamics, thanks to rebate credit language. Not only have we seen the benefits above, but our members are experiencing savings exceeding the rebate credit value taken.

While there are reasons to allow a PBM to use rebate credit language, it is not without potential drawbacks. Credit values are set by the PBM after a contract is signed, as the market develops. PBM oversight is needed to hold the PBM accountable.

On behalf of our members, National CooperativeRx negotiated strong language to limit the use of rebate credits to situations that are proven to be in the best interest of patients and plan sponsors. In addition, we are analyzing data to prove what we expect to see when rebate credits are used. Finally, we will hire an independent auditor, at no additional cost for our members, to prove the appropriateness and benefit of rebate credit dynamics. Our 100% pass-through of rebate value, broadly defined, will continue to collect and remit full rebate value to members.

Humira Biosimilars

After 20 years of market exclusivity, competition to Humira was introduced in the form of biosimilars in 2023. As of April 2024, 10 biosimilars were on the market, creating significant competition. On April 1, 2024, CVS Caremark switched from preferring Humira to preferring select biosimilars, for their most popular formulary offering. In a National CooperativeRx spend comparison of Humira and the biosimilars through the second quarter of 2023 and 2024, we see a significant gross cost reduction of almost $17 million in 2024 compared to 2023 for our membership.

To determine net plan savings, these lower list prices need to be offset by rebate credit value. We estimate our members experienced net savings exceeding $4 million, with most of this resulting in just the 2nd quarter from the formulary switch from Humira to select biosimilars. While further validation will occur through hiring an auditor to look at CVS Caremark’s contracts with pharmaceutical manufacturers, we have validated that our members are experiencing savings from the switch to biosimilars for Humira, net of rebate credits.

Insulin

Significant price reductions were announced for several insulin products beginning January 1, 2024, the result of federal regulatory changes. The prescription drug marketplace is ever changing. Some of those products were discontinued in the US market and other pricing changes occurred in the insulin class, requiring changes to the anticipated formulary placement decisions.

For 2024, National CooperativeRx members took a rebate guarantee reduction to account for anticipated loss of rebates on insulin. Unexpected market changes have resulted in some rebate credit value being taken as well, to achieve lowest net cost. Through September 2024, our members have experienced an overall 55% list price reduction on insulin. Year-over-year spend is down almost $11 million. During the same period, we estimate that the combined total of rebate guarantees taken and rebate credits is approximately $7 million. While we originally expected the insulin list price reduction would be offset by the rebate guarantee adjustment, it appears CVS Caremark has turned marketplace dynamics into aggregate net savings for members of National CooperativeRx.

Rebate credit language will transition prescription drugs and drug classes from a higher list, higher rebate dynamic to a lower list, lower rebate price. When done appropriately, this will be better for patients and plan sponsors. As always, National CooperativeRx is here to provide expertise, purchasing power and oversight as the market goes through dynamic changes such as this. If you have questions about rebate credits, please reach out to your National CooperativeRx account representative.