The Federal Trade Commission (FTC) recently issued a Decision and Order directed at certain pharmacy benefit managers (PBMs). Although the order specifically applies to Express Scripts, Evernorth Health, Medco, and Ascent Health Services, it changes the nature of negotiated prescription drug rebates for all PBMs by requiring them to apply at the point of sale.
Understanding the Current Rebate System
The current rebate system involves drug manufacturers offering certain rebates on prescription drugs and PBMs negotiating those rebates. Insurance carriers then use those rebates to offset costs, lowering premiums for plan members.
However, in practice, rebates constitute retroactive financial corrections to an intentionally overinflated pricing system, which doesn’t aid members when they need it most. The reality is that prescription drug claims are based on list prices that are not representative of the drug’s true costs. Cost sharing for members is calculated based on those inflated prices. Any rebate that applies arrives well after the fact, long after insurance companies and members have paid their shares and the claim is closed.
The overall effect of the current rebate system is that drug manufacturers benefit from raising drug list prices, PBMs are rewarded for negotiating a higher volume of rebates, and insurance carriers benefit from using rebates. Meanwhile, members incur higher out-of-pocket costs, and employers must negotiate policy renewals with uncertain information.
How the FTC Order Changes the Rebate System
The FTC’s decision and order institute a new requirement that upends the current rebate system. According to the FTC, members now must receive the benefit of manufacturer rebates at the point of sale. Under this mandate, out-of-pocket costs for members must be based on the drug’s net unit cost, not its inflated list price. While the FTC order doesn’t eliminate rebates, it does require that insurance companies and/or PBMs account for rebates upfront in adjudicating claims.
For instance, suppose you have a high-deductible plan. If the drug price is $100, you pay $100. However, if a $75 rebate applies, the price drops to $25, and you would only pay $25.
Likewise, when employers renew their insurance policies, their loss ratio justifies the renewal price. However, the loss ratio is based on inflated list prices rather than true prices. If rebates are now applied up front, employers should have a more accurate — and often lower — loss ratio and claims costs with which to negotiate a renewal price. Therefore, insurance carriers can no longer rely on inaccurate claims data and loss ratios to automatically increase premiums upon renewal. As a result, employers may question the necessity of premium increases when considering more accurate data. Employers also may have leverage in negotiations due to increased transparency.
HBL has experience in all areas of benefits and employment law, offering a comprehensive solution to all your business benefits and HR/employment needs. We help ensure you are in compliance with the complex requirements of ERISA and the IRS code, as well as those laws that impact you and your employees. Together, we reduce your exposure to potential legal or financial penalties. Learn more by calling 470-571-1007.
Hall Benefits Law, LLC
Latest posts by Hall Benefits Law, LLC (see all)
- FTC Mandates Point-of-Sale Rebates for Prescription Drugs - April 8, 2026
