Prescription Drug Manufacturer Pre-Rebate Costs Skyrocket

From 2015 to 2019, median prescription drug manufacturer pre-rebate costs per covered life (PCL) increased by 68.1% for individual plans, 44.9% for small group plans, and 23.9% for large group plans, according to a recent JAMA Network Open study.   

Prescription drug manufacturers routinely offer post-sale rebates to pharmacy benefit managers (PBMs) and health insurance plans. But rebates do not reduce patients’ cost-sharing, generally based on pre-rebate list prices set by drug companies. 

Therefore, drug rebates can incentivize drug manufacturers to inflate list prices and PBMs to distort drug formularies to favor high list prices and rebate therapies. 

This study obtained data from health insurers’ mandatory medical loss ratio (MLR) filings for 2015–2019. Each insurer’s MLR information was provided separately for each state and each market within a state.  

The study sample included nearly 2,200 unique health plans with reported favorable prescription drug rebates. Annual pre-rebate prescription drug spending was about $15–16 billion for individual plans, $13 billion for small group plans, and grew from $33 billion to $41.3 billion for large group plans.  

Researchers found that median PCL increased by 54.5% for individual plans, 24% for small group plans, and 7.6% for large group plans annually. Median rebate percentage grew steadily for all plan types: from 11.2% to 18.7%, from 13.3% to 22.3%, and from 13.6% to 22.0% for individual plans, small group plans, and large group plans, respectively. 

Additionally, as drug cost PCL grew by 10% per year, rebate percentage dropped by 0.3% for individual plan types, 0.3% for small group plans, and 0.2% for large group plans.  

Overall, the economic evaluation shows that from 2015 to 2019, the growth of pre-rebate prescription drug costs outpaced the growth of post-rebate drug costs for all three commercial plan types.  

“The consistently negative association between pre-rebate drug cost PCL per year and rebate percentages documented in this study might reflect the fact that many expensive drugs with little competition rarely offer large manufacturer rebates,” researchers stated.  

“As a limitation of this study, caution is needed in interpreting the results owing to the lack of information from MLR reports on benefit design and drug utilization, especially on the composition of brand-name drugs vs generics. Because rebates are almost uniformly directed at brand-name drugs, the actual magnitude of rebates in commercial plans is higher than rebate percentage estimated in this study,” they concluded.