Posted on Apr 28, 2020

CobaltRx

Negotiating Rebates is like Playing a Game without the Rules!: Post 2

Fast forward a few years and plan sponsors started getting better at negotiating and PBMs were faced with how to maximize profits as margins were shrinking from the higher payout to plan sponsors of rebates received from the drug manufacturer. The PBMs approach was to create a new “Administrative Fee” paid by the Drug Manufacturer that came in various forms. These fees in most cases were not disclosed to the plan sponsor. It was not considered by the PBM or the Drug Manufacturer as a rebate.

The PBM was only negotiating on the "Rebate” portion which became smaller because of this new “Administrative Fee”. The new “Administrative Fee” was not considered as part of “Rebate” negotiations.
The next iteration of this was predictable. PBMs continued to grow the portion of “Administrative Fees” over time by adding new “Administrative Fee” categories or by increasing the percentage paid out by the Drug Manufacturer to the PBM as “Administrative Fees”. All of this, of course, continued to shrink or slow the growth of the rebate portion plan sponsors could negotiate.

As a result, for plan sponsors today the “Administrative Fees” portion being paid out to PBMs is unknown. A plan sponsor getting 100% of Rebates, has no way of determining what percentage of the “Whole Pie” the 100% of Rebates actually represents and what percentage are “Administrative Fees” that are not negotiable.

Cont'd on post 3...
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