Cautionary Tale:  Plan Sponsors Losing Manufacturer Rebate Dollars to PBMs through Rebate Aggregators

As we have reported in prior manufacturer rebate articles[1], Pharmacy Benefit Managers (“PBMs”) have created opaque manufacturer rebate arrangements, either directly or through wholly owned subsidiaries. These subsidiaries are “Rebate Aggregators” and they cost Plan Sponsors, beneficiaries, and taxpayers staggering sums of money. Multiple examples of Plan Sponsors being harmed by PBM-owned Rebate Aggregators have been publicly exposed. 

In this article, we discuss Lehigh County’s audit report that revealed one-sided PBM contract terms that have caused Plans to lose rebate revenue.  Plan Sponsors should be aware of rebate arrangements and learn from Lehigh’s audit. PBMs generally offer two manufacturer rebate models, which are: (i) a “pass thru” model whereby PBMs purport to relay 100% of rebates PBMs received, (but in reality, PBM owned Rebate Aggregators retain significant amount of manufacturer rebates); and (ii) a “fixed model” whereby PBMs pay Plans a guaranteed fixed dollar-amount per brand claim regardless of the actual amount of manufacturer rebates PBMs collect. While the fixed rebate model provides minimum rebate guarantees, it may also cap manufacturer rebates that could have significantly lowered a Plan Sponsor’s drug spend. Well educated Plan Sponsors can avoid unfair contract terms by active negotiating the rebate provision of the Pharmacy Benefit Management Agreement. Lehigh County’s contract was opaque and strongly favorable to the PBM. The Lehigh County’s audit report concluded, among other things, that the county could have received in excess of $700,000 in manufacturer rebates during the calendar year (“CY”) 2019. The report further notes that if the county had been allowed the option of receiving the higher of actual rebates earned versus a fixed rebate, the total rebate savings for CYs 2017 through 2020 would have been $1.6 million. 

Why would the County agree to a fixed rebate arrangement?  One likely scenario is that a non-fiduciary benefits broker “facilitated” the PBM—favored terms and conditions.  When a broker that is not a “fiduciary” represents a Plan Sponsor in the Request For Proposal (“RFP”) process, the resulting contract will likely be advantageous to the PBM.  Indeed, the County allowed a broker to select health plans including pharmacy benefits for the County. The County’s contract with its plan administrator, Highmark, contained the following unfavorable terms: (i) the contract language prevented disclosure to the County of critical detailed prescription claim data; (ii) the contract terms and conditions were confidential and prevented disclosure of claim data; (iii) any audit (and the actual person performing the audit) was required to be approved by Highmark before the audit was allowed to proceed; and (iv) Highmark refused to disclose contract details such as pricing, claims paid, and other financial details that Highmark entered into with third-parties such as Express Scripts, Inc. In essence, the County was unable to confirm the true amount of manufacturer rebates it should have received through fixed rebate model (regardless of whether the rebates were negotiated and/or administered by Highmark or Express Scripts or Express Scripts’ offshore Rebate Aggregator, i.e., Ascent Health Services). Plan Sponsors should avoid the contracting mistakes made by Lehigh County and negotiate contractual terms requiring full PBM transparency. 

How Frier Levitt Can Help

Frier Levitt’s Plan Sponsor Practice Group provides a panoply of legal services to Plan Sponsors including, without limitation, healthcare policy review and analysis, auditing (and where necessary litigating against) PBMs to verify that Plans have been paid the proper rebates.  If your organization is a Plan Sponsor, contact us today. 

[1] Frier Levitt Successfully Obtains a $6.25 Million Settlement on Behalf of Its Plan Sponsor Client Against a Pharmacy Benefits Manager, available at:; PLAN SPONSOR UPDATE: Newly Announced Medicare Part D Rebate Rule Is Missing Key Components, available at:; Key Items in Pharmacy Benefit Manager Contracts, available at:; Plan sponsor alert: truths about PBM and manufacturer rebates, available at:; Why Timing Matters When It Comes to PBM Contracting, available at: