Raise your hand if you’ve ever seen the term “rebate credit” in a Pharmacy Benefit Manager (PBM) contract and thought it meant more money for your plan. After all, credits are supposed to be a good thing, right? Unfortunately, in pharmacy benefit contracts, rebate credit language can often be misleading. When it comes to the typical contract, rebate credit language quietly protects the PBM’s profits at the expense of your plan.
Let’s break it down.
What are “Rebate Credits”?
In PBM contracts, rebate credits are a contract clause allowing a PBM to take financial credit against a pre-negotiated rebate guarantee when a plan switches to a lower-cost, lower-rebate drug. For example, when list prices drop, generics enter the market, or a manufacturer’s pricing strategy shifts, rebate dollars may be impacted. A rebate credit allows the PBM to financially benefit from the cost savings created by using the cheaper alternative. This effectively reduces the PBM’s rebate obligation to the plan and lets the PBM retain the value created by the lower drug cost, preserving its profit while passing only a portion of the savings back to the plan sponsor.
How PBMs Use Rebate Credits to Protect Themselves
Rebate guarantees are supposed to be a key part of the financial foundation of your contract and your overall cost management strategy. But, when rebate credit language is included in a contract, your “guaranteed” rebate becomes a moving target as the intended financial benefits are shifted away from you.
For example, when the list price of insulin products was reduced as part of The Inflation Reduction Act, the rebates associated with those drugs shrank. While the point-of-sale cost of these products went down, the net cost to the plan went up because the rebate yield was lower.
The Result: When rebates shrink because drug prices fall, PBMs with rebate credit language in their contracts can use this to protect their margins and protect themselves from market fluctuations. It’s not just about the savings—it’s about the PBMs not making good on their contractual promises.
What It Means for Your Bottom Line
As a payer, having rebate credit language in your pharmacy benefit contract results in illustrative financial guarantees, meaning you’ll never see the full value of the Minimum Rebate Guarantees because the PBM can adjust the rebate payment at their discretion. In other words, you could be leaving real dollars on the table every time drug prices move in your favor.
Even worse, rebate credits remove your control over clinical and pricing strategy. The vendor—not you—decides when and how to apply these credits in response to shifts in drug utilization, which can distort clinical and financial outcomes.
The Bottom Line: While rebate credits may sound like fine print, they’re a financial escape hatch for PBMs to protect themselves from market changes. Look for a pharmacy partner that stays away from these misleading tactics.
SlateRx takes a different approach: our contracts are crystal clear, are fully aligned with our clients, and never contain rebate credit language.
That means you receive:
- 100% of all manufacturer compensation.
- Material contract protections for your plan.
- Actual savings when the market shifts in your favor.
Contact us to see how our fresh approach and contract protections can help your plan achieve real, meaningful savings.
