Magazine article Drug Topics

It's Time for Disclosure of Rebates

Magazine article Drug Topics

It's Time for Disclosure of Rebates

Article excerpt


Pharmaceutical rebates are in the news a lot lately. Reviled by community pharmacists, coveted by managed care groups, and tolerated by drug manufacturers, pharmaceutical rebates are consistently shrouded in secrecy.

Why the secrecy? Let's look at the evolution of the rebate process. The pharmacy benefit management industry began with simple claims processing. The initial goals were to simplify pharmacy benefit administration for health plans and their members. The rise of information technology gave way to electronic point-of-sale (POS) processing, which greatly decreased the unit cost of processing claims.

Pressure to lower administrative costs among PBM clients led to claims processing price wars among the PBMs. Today, there is very little margin in POS claims processing. To supplement their income, PBMs began to develop other sources of revenue, including manufacturer rebates.

To protect bargaining positions, PBM and drug manufacturer rebate negotiations are often kept confidential even from PBM clients. The parties involved claim the information is proprietary; hence, they do not divulge the terms of their agreements. PBMs argue that any revelation about rebates would have a detrimental effect on their ability to negotiate the lowest prices with other drugmakers. Secrecy also benefits drug manufacturers by decreasing pressure on them to continually undercut their competition. But this covert practice raises intense suspicion and mistrust from outsiders, who are not privy to these deals.

The secretive nature of the process increases the temptation to engage in illegal practices, such as rebate skimming. This is defined as significantly overstating drug utilization to a manufacturer to increase rebates while understating total rebate activity to payers, allowing the PBM to skim the difference. Greater PBM reliance on rebates as a source of revenue is a significant ethical problem, especially since maximizing rebates may result in a formulary consisting of more expensive drugs. This is not in the best interests of health plans, managed care organizations, and their members.

The rebate process has already caught the attention of some regulators. Assistant U.S. Attorney James G. Sheehan has made several speeches recently, outlining potential theories of fraud by pharmacy benefit management firms. Sheehan is concerned that PBMs might be steering patients to certain drugs not for their therapeutic value but solely on the basis of financial gain from rebates. …

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