Industry Reactions: OptumRx to Pass Along Rebates

OptumRx, one of the big three pharmacy benefit managers in the industry and subsidiary of UnitedHealth Group, made headlines last week in announcing that they would pass along pharmacy discounts from drug manufacturer rebates to all new employer customers.

A significant announcement that made waves throughout the industry and comes on the heels of the current administration’s efforts to clamp down on high drug prices in this country. We set out to gather industry insider responses to Optum’s announcement and what this could mean for employers and individuals.

A primer:

Many patients interact only with their doctors and pharmacies to obtain their prescription drugs. However, the distribution chain is complex and largely opaque to the consumer.

Pharmacy benefit managers (PBMs) act as an intermediary between the health insurer (or employers in a self-insured environment) and the pharmacy. Their role is developing and maintaining covered drug lists, negotiating pricing, and processing claims. While there are many factors that influence what drugs are covered, pharmaceutical manufacturer rebates are a key driver.

 A rebate is the return of part of the purchase price by the seller to the buyer. Prescription drug rebates are generally paid by a drug manufacturer to a PBM, who then shares a portion with the health insurer. Rebates are mostly used for high-cost brand-name drugs and aim to incentivize PBMs and health insurers to include the manufactures products on their covered-drug lists and to obtain preferred “tier” placement. This is often the case where here is competition among certain therapeutic classes and there are interchangeable products.

Rebate contract terms are trade secrets and vary widely among brands. This secrecy makes cost comparison of competing brands on the basis of price alone extremely difficult. Due to this “black box” in the distribution chain of prescription drugs, the patient and often the employer are unable to tell how much of the rebates PBMs are keeping for themselves before passing the remainder to the health insurer. Industry reports peg average rebates to close to 20% of the price, while some brands have none and others are believed to offer rebates of over 60%.   

Industry Reactions:

In an effort to better understand what Optum’s announcement may mean for consumers, we sourced reactions from a handful of our colleagues and partners (whom are way smarter than us).  

“All in favor of reducing Rx cost for both members and plan payers – just wondering why reconstituting the opaque brand name rebate systems as opposed to actually offering honest pricing is the process selected by Optum – moreover, rebates are tied to brand name meds which are less than 25% of the Rx filled today.  Hopeful, but doubtful!”
— Midwest Rx industry observer
“Until I learn otherwise, I am a bit skeptical. I read that OptumRx will be sharing their rebates with employees. The Fiduciary PBM partners that we work with share all of the rebates and manufacturer revenue with the employer. I am concerned that (a) the “point of sale” rebate may undermine a self-funded employer’s Rx copay design and (b) since these rebates are available for name brand medications, there may be a financial incentive for members to utilize name brand medications rather than less expensive generic medications.”
— Gary Becker, CEO – ScriptSourcing
“Rule of thumb: If a public company declares that something will benefit consumers’ pocketbooks and they haven’t provided updated guidance to Wall Street that their earnings will be lower, it’s part of a shell game.”
— Dave Chase, co-founder – Health Rosetta
“UHC & OptumRx are going to deliver those rebates down to the member level to offset the high cost to plan members filling the prescription.

Where the rub is in this program is that it doesn’t necessarily mean the plan will see any greater financial benefit in terms of total rebates dollars shared, rather just that the rebate is going directly to reduce the member’s out-of-pocket cost.  UHC and OptumRx routinely retain a great deal of the manufacturer revenue through the structuring of their PBM service agreements with the plan and this portion they retain is a large revenue stream for them.  Now, plans will have to adjust to account for less drug offset cost
Ultimately, it all boils down to your PBM service agreement, how they define “rebates” and what stipulations they include in the contract for retaining portions of the “rebate” for various reasons.”
— Rex A Wilcox, Sales Executive – SmithRx