Rebates are a powerful tool for lowering astronomically high list prices for prescription drugs. Employers use the manufacturer rebates secured by their pharmacy benefit managers (PBMs) to reduce out-of-pocket costs and premiums for patients. Rebates mean lower prescription drug costs.
A new survey from Healthsperien shows nearly 9 in 10 employers use rebates to lower patients’ out-of-pocket costs. More than 80% apply those savings to lower premiums.
PBMs pioneered the use of rebates to lower drug prices, and the federal government followed by implementing rebates in Medicaid and more recently, in Medicare. That’s because rebates are a proven, effective cost-cutting tool.
The Rebate Pass Through Contract Trend
PBMs have been passing more and more manufacturer rebates to clients over the past decade. In a House Oversight Committee hearing, PBM CEOs testified that 98-100% of the rebates they negotiate off drug list prices goes to the employers. A 2025 economic report confirmed most PBMs pass nearly all rebates on. Employers have always had this choice.
Nonetheless, the recently passed Consolidated Appropriations Act (CAA) codified 100% rebate pass through for commercial health plans.
Under the CAA, PBMs must pass through 100% of rebates, fees, alternative discounts, and other dollars received from drug manufacturers that are tied to drug utilization or spending. The law ensures that rebate aggregators and group purchasing organizations provide these rebates to the PBM in a timely way. Employers and unions have even stronger audit rights going forward to verify compliance.
Through another section of the CAA, employers and unions will clearly see what they are paying for, like an itemized bill. By receiving all of the rebates and price concessions that PBMs negotiate, employers will have the power to decide how much to pay PBMs for the value they provide for cost reduction, claims processing, clinical programs, disease management, and pharmacy network offerings. Contract terms like rebate guarantees are also likely to fade away over time, according to one PBM reform advocacy group.
Time to Move On, It’s Time to Get Going
Even in the face of academic research to the contrary, Big Pharma convinced policymakers that rebates contribute to higher drug prices. Eventually drug manufacturers got what they wanted and 100% rebate pass through is now law. This will do nothing to lower drug prices. So like the late great Tom Petty said: it’s time to move on, it’s time to get going.
It’s time for Big Pharma to move on from crying foul on rebates, and for policymakers to recognize that the law of the land now requires PBMs to pass 100% of the rebate money to their clients. The debate is settled, manufacturer rebates will be passed through, and Congress can focus on real solutions that will deliver affordability to American families.
The CAA enacted this year includes wide-ranging provisions that dictate how employers, unions, and the government contract with PBMs, mandate new reporting, and impose additional requirements. This post is part two in the Inside PBM Reform series that explores how the provisions in the bill will impact patients, employers, and taxpayers.
