Manufacturer Alert: do not blindly pay rebate aggregator invoices. Recently, a manufacturer approached us with a large rebate invoice. After some back and forth, we were able to reduce the rebate invoice from a major Pharmacy Benefit Manager (“PBM”) by more than 83%. The drug manufacturer was faced with a multi-million-dollar demand for payment of rebates by a PBM and its wholly-owned rebate aggregator (also known as a Group Purchasing Organization or “GPO”). We resolved the rebate dispute pre-litigation with more than an 83% discount.
Background into Manufacturer Rebates and PBMs’ Tactics
The Federal Trade Commission’s (“FTC”) recent complaint against the Big 3 PBMs (i.e., Caremark, Express Scripts, and OptumRx) and their rebate aggregators (Caremark-Zinc Health Services, Express Scripts-Ascent Health Services, and OptumRx-Emisar Pharma Services) outlines the interplay between PBMs and manufacturer rebates.[1] PBM-owned rebate aggregators contract with pharmaceutical manufacturers to extract rebates in exchange for placing the manufacturers’ products on the PBMs’ drug formulary. PBMs create drug formularies, which are lists of preferred and non-preferred drugs grouped by categories that are used to steer insured patients to certain prescription drugs and away from others.[2]
Manufacturers pay hefty rebates to PBMs out of fear that PBMs will actively exclude their drug products from the formularies. PBMs weaponize rebates through plan design. PBMs can place drug products in a non-preferred category and outside of insurance coverage for tens of millions of patients, place the drug on “tier three copay” and make the drug require Prior Authorization or “step therapy”– techniques making the drug product less desirable to consumers.[3] PBMs may extract over 70% of the list price of drugs as a rebate. Recently, Norvo Nordisk (i.e., the manufacturer of Ozempic) testified that the company pays “75 cents of every dollar of medicine” in “rebates, discounts, and fees.”[4] Unfortunately, these rebates are not all passed through to the patient or large self-funded employers. Rebate aggregators profit from the rebates by labelling a portion of the rebates as “fees.”[5]
How Did The Rebate Dispute Between PBM/Rebate Aggregators and Manufacturers Happen?
PBMs and/or rebate aggregators enter into rebate agreements with drug manufacturers. The terms of those agreements dictate the rebates. Like most contracts, disputes may arise over the contract terms, what was promised versus what is delivered, and disputes over the meaning of key contract terms.
In the dispute described above, the PBM and rebate aggregator believed that the rebate agreement with the drug manufacturer covered all commercial plans and sought payment for rebates beyond what the manufacturer believed was owed. On the other hand, the drug manufacturer believed it was induced into signing the agreement with documented false promises and misrepresentations.
What are the Negative Impacts for Plan Sponsors?
PBMs often utilize rebate aggregators without revealing to Plan Sponsors that the rebate function has been subcontracted. Rebate aggregators retain rebates and fees that should be relayed to Plan Sponsors. PBMs may have spun off these rebate aggregators as separate entities to retain revenue from incremental fee structures. As a former OptumRx executive who helped establish Emisar explained, “[t]he intention of the G.P.O. [rebate aggregator] is to create a fee structure that can be retained and not passed on to a client.”[6] A review of PBMs revealed novel methods of rebate fee generation. One report estimates that since the PBMs spun off their rebate aggregators, they have extracted from drug manufacturers billions of dollars in additional fees, which doubled from $3.8 billion in 2018 to $7.6 billion in 2022.
Should Manufacturers Audit their Rebate Invoices?
Drug manufacturers should audit their PBM rebate invoices.
Frier Levitt’s Plan Sponsor Group represents self-funded employer plans and drug manufacturers that have disputes with PBMs and rebate aggregators. Our team of trial attorneys, pharmacist-attorneys, and regulatory attorneys understand the PBM landscape and in particular, drug rebates. If you have a dispute or disagreement over a demand for payment of rebates, contact us.
[1] A copy of the FTC’s redacted complaint can be accessed here: https://www.ftc.gov/system/files/ftc_gov/pdf/d9437_caremark_rx_zinc_health_services_et_al_part_3_complaint_corrected_public.pdf.
[2] FTC complaint, ¶ 4.
[3] Id. at ¶ 5.
[4] https://www.help.senate.gov/imo/media/doc/fa475d00-dca5-9b2c-4565-e5bdc272566d/2024-09-24%20Lars%20Fruergaard%20J%C3%B8rgensen%20Written%20Testimony.pdf
[5] Id. at ¶¶ 45-49.
[6] Id. at ¶ 22.
