Drug Manufacturer Rebate Audits: A Must for Today’s Health Plans

By Derek Frye
Mon, Jul, 08, 2019

The opportunity to recoup more of your health plan’s drug benefit dollars through PBM-administered rebates has never been better than in today’s market. So now is the perfect time to consider conducting a drug manufacturer rebate audit.

A drug manufacturer rebate audit involves a deep analysis that closely examines the rebate agreements that exist between the PBM and drug manufacturers. A typical rebate audit will involve the top five to ten manufacturers that contract with the PBM, based on dollar value of the rebates on the drugs, which usually equals the top 50% to 75% of all rebates invoiced. Specialty drug rebates often determine which manufacturers will be audited, because of the high dollar amounts involved.

Why just five or ten manufacturers? PBMs typically won’t allow rebate audits to be performed on the more than 60 individual manufacturer contracts it typically has, given that preparing all those contracts for audits is more work than the PBM is willing to do.

Download The Health Plan's Guide to Auditing PBM Contracts: Update for the 2019-2020 CMS Audit Season 

Only about 5% of health plans today conduct annual rebate audits on manufacturers. But that percentage is expected to grow given the high dollar amounts that can potentially be recovered for the health plan.

Here is a list of common problems identified during rebate audits:

  • Plans not getting the rebates they are entitled to due to formulary exclusivity provisions and other utilization management tool exclusions (Prior Authorizations) in the contract.
  • Competitor drugs on the formulary that may limit PBM rebates, even if it's your own health plan’s formulary. (PBMs often try to design these to maximize their rebates).
  • Price protection provisions, or market share goals, that might have been under-or over-invoiced, resulting in incorrect PBM rebate payments to your plan. These often occur if certain contract language provisions between the PBM and manufacturers (or between your plan and the PBM) are not clear or are subject to the PBM’s interpretation. Sometimes these are simply “missed” by the PBM financial analysts who invoice for and reconcile rebates the PBM is administering on your behalf.

When Plans Should Conduct Manufacturer Rebate Audits

There are special circumstances when a health plan should strongly consider performing a manufacturer rebate audit, due to the likelihood of errors occurring:

  • If there has been a recent pharmacy benefit design change. One health plan we worked with recovered more than $3 million in “lost” rebates. The rebate audit showed that a PBM analyst who calculated the rebate misunderstood or overlooked a new code that had been added to the plan’s formulary following the benefit design change.
  • If there has been a significant increase or decrease in PBM rebate payments your plan is receiving from the PBM
  • If there has been a significant “reconciliation” payment made by the PBM to your plan.
  • Medicare Advantage plans that report direct and indirect remuneration (DIR) to CMS (used by the agency to determine the accuracy of annual health plan bids). Almost every Medicare Advantage plan reports DIR to CMS, and CMS will expect plans to have done due diligence oversight when the agency conducts a 1/3 financial audit. Plus, DIR reporting rules are constantly changing: we're aware of multiple clients receiving incorrect DIR reports from their large, name-brand PBMs for their upcoming DIR submissions.

How to Choose the Right Auditor

A manufacturer rebate audit involves using a third party, independent auditor who must go on-site to the PBM and health plan. While the on-site time can take just a few days, the entire process often takes several months. Experience truly matters here. Before you hire a rebate auditor, be sure to ask how many rebate audits the individual or firm has done. As with PBM contractual rebate audits, it is best to hire someone who has previously worked in a PBM rebate department. You should also ask what percentage of their rebate audits have resulted in “lost” rebate dollars being identified and collected. Make sure it is at least 60% so you are not wasting money on a fishing expedition.

How your PBM contract defines rebates also determines how many rebate dollars your health plan will receive. So, having a trusted independent PBM consultant guide your PBM procurement and contract negotiation can also help you achieve maximum value over the long term.

Download The Health Plan's Guide to Auditing PBM Contracts: Update for the 2019-2020 CMS Audit Season