Pharmacy Benefit Managers, Rebates, and Drug Prices: Conflicts of Interest in the Market for Prescription Drugs

25 Pages Posted: 14 Jan 2019

Date Written: January 1, 2019

Abstract

Pharmacy benefit managers (PBMs) manage the drug benefits for over 95 percent of Americans with prescription drug coverage. However, conflicts of interest inherent in the PBM business model create perverse incentives for drug price increases. The most significant conflict of interest arises from manufacturer rebates paid to PBMs. PBMs negotiate rebates from drug manufacturers in exchange for giving the manufacturers’ drugs preferred status on a health plan’s formulary. Because the rebates paid to PBMs are typically a percentage of a drug’s list price, drug makers are compelled to increase list prices in order to satisfy PBMs’ demands for higher rebates. Although a portion of the increasing rebate dollars may eventually find its way to patients in the form of lower co-pays, many patients still suffer from the list prices increases. This Article analyzes various proposals to rein in PBM rebates and asserts that, compared to the other proposals, a point-of-sale rebate system maintains many of the benefits of selective contracting while minimizing incentives to increase drug list prices.

Keywords: pharmaceutical, drugs, pharmacy benefit managers, conflict of interest, rebates

Suggested Citation

Shepherd, Joanna, Pharmacy Benefit Managers, Rebates, and Drug Prices: Conflicts of Interest in the Market for Prescription Drugs (January 1, 2019). Available at SSRN: https://ssrn.com/abstract=3313828 or http://dx.doi.org/10.2139/ssrn.3313828

Joanna Shepherd (Contact Author)

Emory University School of Law ( email )

1301 Clifton Road
Atlanta, GA 30322
United States
404-727-8957 (Phone)

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