The Myth about Drug Rebates and List Prices

Rising drug prices are having an impact on patients every day, especially those in high deductible health plans who are paying an increasing share of the cost of their prescription drugs. While the current debate about drug pricing and the role of pharmacy benefit managers (PBMs) centers on rebates and their impact on drug costs, it omits key facts and obscures the truth behind rising drug costs.

Pharmaceutical manufacturers insist that increasing drug prices are a result of them having to pay rebates. This is simply not true. If that was the case, rebates and list prices should be highly correlated. To the contrary, our data show that in many cases list prices are increasing faster for drugs with smaller rebates than for medications with substantial rebates. Revlimid, manufactured by Celgene, is a good example. The price has tripled since 2005 to more than $18,000, yet there are almost no rebates.

Pharmaceutical manufacturers also argue that PBMs retain the rebates they negotiate, and that higher drug prices mean more rebates and greater profits for PBMs. This is entirely false. Rebate retention also has no correlation to higher drug prices. Indeed, our data show that while branded drug spend per CVS Caremark member has increased from about $608 in 2011 to $831 in 2017, the average rebate retained by the PBM over that time is less than $20 per member. In 2018, we expect to retain just 2 percent of rebates, about $300 million, across our commercial book of business, and CVS Caremark clients — employers and insurers — use rebates to lower the costs of providing insurance for their employees and members.

It’s important to also understand that Government-mandated rebates in the Medicaid program are shared by the states and the Medicaid program. PBMs do not receive and, therefore, do not keep any of those mandated rebates.

At CVS Health, we are committed to using every tool possible and continuing to drive innovation to bring down the cost of drugs. We remain focused on providing the right drug to the right patient at the right time at the lowest possible cost.