AH022 - Pharmacy Benefits 101: Pharmaceutical Rebates, with Ben Schuster

Transcript

Lightly edited for clarity.

[00:27] Justin Venneri: Hello and welcome to this episode of the Astonishing Healthcare podcast. I'm Justin Venneri, your host and Director of Communications at Capital Rx, and I have the pleasure of discussing pharmaceutical manufacturer rebates today with our very own Ben Schuster, Senior Director of Rebate Administration. Ben, thanks so much for joining me today.

Ben Schuster: Yeah, thanks, Justin, for having me. I'm excited to be here.

[00:47] Justin Venneri: Okay, we worked on an article on rebates last year, and I'll link that in the show notes, most likely along with a couple other things that could be helpful for listeners. And it occurred to me the other day when we were talking about rebate eligibility for GLP-1s, this is still a topic -- rebates, that is -- that we could cover in a helpful way, starting with the basics without boring anybody.  

So, Ben, maybe quickly can you get into, you know, at the highest level, what are pharmaceutical rebates? Where did they come from and how did they become an important thing in the pharmaceutical supply chain?

Ben Schuster: Yeah, Justin. Rebates are retrospective payment provided by drug manufacturers to help reduce the cost of specific drugs. Rebates may be a form of revenue for many traditional pharmacy benefit managers, where not all the dollars “pass through” all the time. If you could all see me, I used air quotes around pass through because of how the dollars moved from the manufacturers through to the payer patients, essentially through the supply chain.

[01:46] Justin Venneri: That makes sense. And we have some other related content on patients pass through versus non pass through. But one thing, if we go up a level, how do the rebates actually flow through the pharmaceutical supply chain, and how has that changed over time?

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• Pharmacy Benefits 101: Pharmaceutical Rebates
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Ben Schuster: Yeah, good question, Justin. If we step back and think about the pharmaceutical supply chain -- a member going to a pharmacy, a pharmacy providing the product, a member would also, you know, pay their health plan, health plans working with PBMs, such as Capital Rx.  

Traditionally, PBMs would be working or negotiating rebates directly with pharma. Starting in 2019, the landscape changed when the large, vertically integrated players started these large group purchasing GPO operations to aggregate claims for rebates.

Basically, what I believe they were trying to do was create an economy of scale and have more bargaining power. The first one started in 2019, quickly followed by the others in 2020 and 2021. So today, virtually everybody is probably using either a rebate aggregator who was working directly with one of these entities or working with one of these entities themselves.

[03:03] Justin Venneri: Okay, that makes sense. And then forgive me for asking another basic one to follow on the new stop in the flow, if you will, with that rebate aggregator. I feel like I hear this a lot. Why do rebates exist? And do manufacturers offer rebates on all classes of drugs?

Ben Schuster: Yeah, that's another good question. I think this can vary depending on who you ask. But again, if we kind of go back to the root, if we might say, I believe the goal, you know, was for the manufacturers to get their products onto formularies essentially on a preferred status for market share, and by doing so, keeping their competitors off of the formulary.  

For your second question, the answer is no, not all drugs are rebated, and that also can vary depending on the differing manufacturers and contracts available. But as a rule of thumb, we don't see rebates on generics. It's typically the brand and specialty drug manufacturers offering rebates for their products. And not all PBMs can collect rebates on all brands and specialty drugs. Again, it's going to be contract specific depending upon what's negotiated.

[04:09] Justin Venneri: Okay. And how does paying drug rebates get more complicated?

Ben Schuster: Yeah, so we already discussed the creation of these large GPOs. Again, historically, most of these PBMs contracted directly with the manufacturers for rebates. So over time, the larger PBMs started aggregating the drug volume of smaller and mid-sized PBMs. Again, thinking about economy as a scale and consolidating that market share, creating negotiating power. As a result, most PBMs, as I think I'd already said, now contract directly with either a rebate aggregator or a GPO to take advantage of this bargaining power.

[04:52] Justin Venneri: And then what are the most common methods of rebate, quote, unquote, payment?

Ben Schuster: The two primary methods that you'll hear are rebates paid on a guarantee basis and rebates paid on a pass through basis.  

I think to start, we'll talk about guarantees. To oversimplify guarantees, if you take all the rebated products, or all the rebated value that you expect to receive, and you break it into differing channels -- retail 30, retail 90, mail or specialty -- and you determine how many claims from each of those channels you expect to have, you can apply a guarantee to each channel.

From those guarantees, we can get a little bit further into the weeds here, Justin. We can talk about exclusions, and I won't hit on it too much because I think we're going to discuss this later. But essentially, using exclusions, you can impact the denominator of the calculation and drive up those guarantees. So, on a guarantee payment, you have definitions that determine what drugs are guaranteed, a rate that they're guaranteed, and then you're simply just multiplying that rate by the number of drugs in each channel. That determines the rebate payment for that bucket of products.  

And then on the flip side, you have a pass through arrangement.

[06:16] Justin Venneri: Okay.

Ben Schuster: And in a pass through arrangement, the rebates are paid based on the amount of rebates invoiced and received from manufacturers on a drug-by-drug basis.

[06:25] Justin Venneri: So, the dollar is literally just passed through as the claims are processed and the money changes hands, essentially.

Ben Schuster: In its most simplistic form, yes. But again, with air quotes, pass through doesn't always mean pass through.

[06:39] Justin Venneri: Understood. Okay, so you alluded to this a moment ago, the contract definitions. Sounds like they’re pretty important here.

Ben Schuster: Yeah, contract terms matter. And I think always, as a good rule of thumb, making sure you understand your contracts, you understand the definitions, and you understand how they relate together. The simple example I was discussing earlier about shifting products based on the denominator.

[07:05] Justin Venneri: For the guarantee, right?

Ben Schuster: For the guarantee. Yep. If we, just for simple math, assume we have $100 in rebates, its total expected value. And the number of claims driving those rebates, you know, is 20. We could essentially say a $5 guarantee.  

With exclusions, we could change that and say, well, we're going to get rid of half of those claims because they're not going to be a guaranteed claim. We've excluded them. So now we have ten claims, and now we've propped up the guarantee $10.  

Again, simple math, but highlighting why it's important to understand where your claims are going. The overall value is not changing, you're just changing how it's spread out.

[07:49] Justin Venneri: And so, if, if the definition excluded a particular type of drug, a class of drugs or something like that, it could materially impact what the plan sponsor would receive from a PBM.

Ben Schuster: Yeah. Especially if they're on a straight guarantee payment. They're only going to be paid for the guaranteed dollars. Now, on a pass through arrangement -- you know, earlier I used air quotes for pass through -- contract terms matter as well. And a good example here is the Manufacturer Admin Fees-- MAFs. These are other fees paid for services performed on the manufacturer behalf. I googled that, to be honest with you. And that's the ambiguous term that came back.

[08:29] Justin Venneri: That's awesome.

Ben Schuster: So a MAF, if it's not defined as a rebate, may not be going back to the plan sponsor. So, it's really important to understand that this bucket of dollars exists, and if it's not coming back to the plan sponsor, it's going somewhere.

[08:44] Justin Venneri: Got it. And then GLP-1s, it seems like a good example of something -- and it's timely, of course -- that plan sponsors need to be more aware of regarding rebate eligibility. Can you just briefly explain what's going on there, why? We've seen some news around this recently and just what, you know, at a high level, plan sponsors should keep in mind.

Ben Schuster: Yeah, that's a good question. So, the rebate eligibility around these GLP-1s can have specific terms. And so, a sponsor does need to understand what makes a claim rebate eligible or excluded. The state of North Carolina recently went through this and ended up excluding a number of the GLP-1 products due to these restrictions.  

It's a balancing act. Plan sponsors want to curb costs and make sure that the right product is going to, you know, the right person. But essentially, plan sponsors need to be aware that if they're making any modifications from the FDA package insert, especially on GLP-1s, that it may make their claims ineligible for rebates. And so, kind of back to the scale, they need to be able to balance the loss of rebates to whatever potential cost savings they expect.

Managing GLP-1-related Costs

• AH021 - Managing Pharmacy Costs in a GLP-1 World, with Bridget Mulvenna
• How to Manage Pharmacy Benefit Spend in a GLP-1 World

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[10:06] Justin Venneri: That makes sense. It's definitely an interesting situation because of, like you said, the labels and what these are approved for, and then it's just a matter of having a good understanding of the population and what that impact could be. So, GLP-1s [are] obviously the hot topic, but what else can plan sponsors do? Or what should they watch out for with rebates, or MAFs, that you mentioned earlier?

Ben Schuster: Yeah, I think there's a couple things that plan sponsors can do, and we already hit on one of them. And the first is making sure that they're requesting a pass through arrangement with minimum guarantees. Having a minimum guarantee isn't a bad thing. It does set a floor, but having the pass through arrangement make sure that you receive all the rebates earned by you as a plan sponsor.  

With that being said, again, contracts matter. Make sure you understand the definitions in your contracts. Make sure that you understand what makes claims rebate eligible or ineligible. And going back to MAFs, making sure that the MAF is included as part of your rebate.

[11:17] Justin Venneri: Got it. And then I think one thing that comes up a lot is questions around rebates across all prescriptions or like a quote unquote per all Rx rebate guarantee. Can you explain how that helps?

Ben Schuster: Yeah, so again, going back to kind of that very simplistic math that we did earlier, if we can simplify that even further, using a all Rx, or a per brand all Rx, we can reduce the complexity or games that could be played here. For example, you know, definitions of brands, generic specialty, retail mail, excluded claims, etc. The PBM may still be able to change that denominator based on what's considered a prescription. By moving to a per brand Rx, you can essentially capture everything and reduce the impact of contractual wordplay.

[12:10] Justin Venneri: Okay, one last question for now. What's the most astonishing thing you've seen that you can safely share but is still interesting as it relates to our discussion today?

Ben Schuster: Yeah, I can't pinpoint one exact thing, but I just think the market dynamics at point play in general -- everything that's happening right now between biosimilars, GLP-1s, and again, going back to the reduction in WAC prices for insulins. All of these factors happening at one time are really making this -- it's challenging the status quo, I think you might say, in changing the market in ways that might not have been seen before.

[12:49] Justin Venneri: Do you think in the aggregate, the changes we're seeing are a net positive for pharmacy program costs, or does it depend on the outcome of some of these changes?

Ben Schuster: I think it's going to depend on the outcome. Only time will tell.

[13:05] Justin Venneri: Fair enough. Okay. All right, Ben, thanks a lot for joining me today. Again, I'll put some links in the show notes for everyone, and we'll look forward to seeing how things play out with rebates in the marketplace. And hopefully I'll have you back on later this year to provide an update.

Ben Schuster: Yeah, thanks, Justin, for having me.

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