Previously, we looked at why rebate transparency remains so elusive. The disconnect Adam Fein highlighted in PSG’s data – PBMs reporting 95%+ rebate pass-throughs while many employers can’t confirm they’re receiving 100% of their rebates – isn’t simply a measurement problem. It’s the product of a system built around financial incentives that reward complexity.
That’s an important conversation. Employers deserve to know exactly where their rebate dollars are going, and greater transparency is unquestionably a step in the right direction.
But here’s the punchline everyone keeps dancing around.
What if every rebate dollar could be perfectly tracked, audited, and reconciled?
What if employers knew exactly how much they received, where every manufacturer payment went, and every PBM contract was completely transparent?
They could still be overpaying.
That’s because the rebate conversation has become fixated on one question: Did we get all of our rebates?
The more important question is one that rarely gets asked:
Were we paying for the lowest-net-cost therapy in the first place?
A bigger rebate doesn’t necessarily mean a lower cost. It simply means a larger discount off a higher starting price. And if formularies are designed to maximize rebate value instead of minimizing total plan spend, employers can “win” the rebate audit while still writing a bigger check than they needed to.
Transparency matters. But transparency only tells you how the game was played. It doesn’t tell you whether you were playing the right game to begin with.
The Industry’s Favorite Trick: Make the Math Confusing, Then Act Confused That You’re Confused
Think about how backwards this is. We have an entire industry built on byzantine rebate guarantees, minimums, carve-outs, and “alternative arrangements” – and then the same industry turns around and acts genuinely puzzled when surveys show employers can’t confirm they got their money. That’s not a mystery. That’s the business model. You don’t accidentally end up with 34% of employers on “other arrangements” for traditional drugs and nearly half for specialty drugs. You build that.
But here’s the part that should really bother plan sponsors: even a fully transparent, fully audited, 100%-of-every-rebate-accounted-for contract can still leave a plan overpaying. That’s because rebates were never actually the finish line. They’re a discount off a list price – and list prices, tiers, and formulary placement have all been quietly engineered around maximizing that discount, not around minimizing what the plan actually pays after everything is said and done.
That’s the trap. The rebate rat race optimizes for the size of the rebate. It says nothing about the size of the check the plan is still writing.
Chasing Rebates Isn’t the Same as Chasing Lowest Net Cost
Here’s the distinction nobody in the rebate conversation wants to make plainly: a bigger rebate is not the same thing as a lower net cost.
A drug can carry an enormous rebate and still be the more expensive choice once you net out list price, dispensing fees, and utilization against a clinically comparable – sometimes clinically superior – alternative with a smaller headline rebate. Formularies built to chase rebate guarantees will systematically prefer the first drug over the second, every time, because the incentive structure is pointed at the rebate, not the invoice.
Plan sponsors who spend their energy auditing rebate percentages are, in effect, fighting over how the pie gets sliced – while the size of the pie itself keeps growing because nobody’s asking the more basic question: of all the therapeutically appropriate options here, which one actually costs the plan the least, net of everything?
That’s a different question than “did we get our full rebate.” It’s a better one. And it’s the one that actually determines what a plan spends.
What We Built Instead
At Ethicos Health, we got tired of watching plan sponsors run in circles chasing rebate guarantees while the number that actually hits the plan’s budget – true net cost – went largely unmanaged. So we built a platform that helps payers and employers evaluate specialty medication decisions on a lowest-net-cost basis: weighing list price, rebates, fees, and real-world utilization against clinically comparable options, rather than defaulting to whichever drug clears a rebate threshold.
The goal isn’t to win the rebate audit. It’s to make sure the plan is landing on the option that costs the least once every dollar – rebated or not – is actually counted.
So, About That Transparency Law
Will the CAA’s disclosure rules close the gap PSG keeps finding year after year? Maybe a little. Sunlight helps. But full transparency into a rebate arrangement only tells you how the rebate race was run – it doesn’t tell you whether the plan sponsor should have been running that race in the first place.
The real fix isn’t a more detailed rebate disclosure. It’s stepping out of the rat race entirely and re-centering the conversation on lowest net cost. Measure what the plan actually pays, all-in, for the outcome it’s buying. Everything else is just a very expensive argument about who gets to keep the rounding error.