As the pharmacy industry continues to evolve, different rebate models are arising to address increasing market and policy demands for transparency and lowest net cost approaches to pharmacy benefits. For plan sponsors, this shift creates a new set of questions: what rebate dollars are actually being earned, how are they calculated, and does greater transparency translate to better contract performance?
What Are Rebates?
Rebates are payments manufacturers make to PBMs based on a plan’s utilization of a manufactured drug. In return, manufacturers may receive better formulary access from the PBM, such as preferred tier placement, fewer utilization management barriers, or stronger positioning against competing products for a given therapeutic category or indication.
Today, many PBM contracts use channel-based guarantees or member-based credit models to pass along value received from rebates back to the employers who are paying for branded drugs up front.
In a channel-based guarantee, rebates are tied to the channel a claim runs through, such as retail, mail, or specialty, and often by day supply. This structure is straightforward, grouping drugs into broad buckets and applying the same or similar rebate logic to every drug in that category.
Member-based credit models take a different approach by giving plan sponsors standard credit at regular intervals, leaning on projections to determine how much the plan should receive. This approach can help an employer with predictability and cash flow, but realistically it limits visibility into how rebate value connects to actual utilization. Many contracts also contain language affirming that a certain percentage of rebates above the proposed guarantee will be passed through to a Plan Sponsor.
What Are Drug-Level Rebates?
Drug level rebates refer to a model where rebate amounts are guaranteed on a per “drug” level. The word “drug” matters here because contracts may define it in different ways. Some drug level rebate models may use the National Drug Code (NDC) which identifies a specific drug product and package, while others might use the Generic Product Identifier (GPI) and group products by therapeutic classification. A single GPI can include multiple NDCs, and those NDCs can have different price points.
If the contract language does not clearly define which identifier is being used, plan sponsors may struggle to clearly understand how rebate value is being calculated.
Drug level rebate models will likely calculate rebates as a percentage of wholesale acquisition cost (WAC), which is a manufacturer’s list price before discounts and rebates. Because WAC varies by product, two drugs in the same therapeutic category can generate different rebate amounts.
For example, if a contract applies an 18 % rebate to WAC for a given drug category, a product with a $125 WAC would generate a $22.50 rebate, while a product with a $330 WAC would generate a $59.40 rebate. Under a channel-based guarantee, those drugs may have been treated the same. Under a drug-level model, the rebate calculation follows the product itself.
Drug-level rebate models give plan sponsors more visibility into which products are driving rebate value, how rebate performance compares to drug spend, and whether the plan is moving toward the lowest net cost options where clinically appropriate.
But transparency comes with complexity. When evaluating contract proposals or reviewing PBM performance, plan sponsors now have to understand how drugs are classified, how WAC pricing changes throughout the affect rebate amounts, and how drug exclusions or reclassifications are handled over the life of the contract.
More detail can create a path to better oversight, but only if the plan and its benefit support structure have the tools, data, and expertise to validate rebate performance.
Key Considerations for Plans Assessing Drug Level Rebate Offers
Drug-level rebates introduce a new, required way of thinking about rebate economics because performance is tied to individual drugs instead of channels. Pricing changes, reclassifications, exclusions, or different pricing methodologies can shift rebate calculations in real time and in ways that are difficult to assess without claim-level and contract-level analysis. Plan sponsors may also see lower rebate checks even while net costs improve, especially if formulary adjustments nudge utilization towards lower-WAC products.
Employers should expect drug-level rebates, and similar models, to become increasingly relevant as PBMs respond to transparency demands, the Consolidated Appropriations Act 2026 (CAA 2026) reporting requirements, and broader market pressure.
To prepare, plan sponsors should:
- Start procurement early – Drug-level rebate models introduce additional contract considerations, so plan sponsors should allow more time to review terms before renewal.
- Understand utilization and trend patterns – Identify which drugs are driving spend, how utilization is shifting over time, and whether the plan is moving toward lowest net cost products where clinically appropriate.
- Monitor PBM reporting under CAA 2026 – As new reporting becomes available, plan sponsors will need a process to review, validate, and interpret what is being shared.
- Validate drug-level rebate data – Rebate amounts may vary by drug, NDC/GPI classification, WAC changes, and contract logic, making ongoing validation a key part of oversight.
- Strengthen contract language – Clearly define WAC, exclusions, reclassification, pass-through terms, reconciliation, and offsetting logic.
As drug-level rebate models become more common, plan sponsors need a way to evaluate these offers before the contract is signed and monitor performance after implementation. Truveris helps connect claims, pricing, and contract data back to total pharmacy cost, giving plan sponsors clearer insight into rebate value and PBM performance.
