As drug list prices shift and the biosimilar market matures, a new dynamic has quietly emerged in PBM contracts: rebate credits. For plan sponsors, understanding how rebate credits work and what they signal about your pharmacy benefit is important for evaluating PBM performance and managing costs.
What Are Rebate Credits?
Rebate credits are a mechanism that PBMs may use to offset their declining rebate revenue when market conditions change after a contract has already been negotiated. They are not a direct payment from the plan sponsor to the PBM. Instead, they are contractual credit amounts that can be applied toward a rebate guarantee when actual manufacturer rebate revenue falls short of the guaranteed level due to factors such as biosimilar adoption, lower drug prices, or other market changes.
Traditionally, PBM contracts include rebate guarantees: commitments to pay plan sponsors a minimum level of rebates over the contract term, often spanning three years. Those guarantees are based on assumptions about drug utilization, list prices, and the rebates manufacturers pay to maintain formulary placement.
When those assumptions no longer hold, such as when list prices drop or utilization shifts to biosimilars, the PBM may not collect enough rebate revenue from manufacturers to meet its contractual guarantees. Rather than renegotiate every contract individually, many PBMs have adopted rebate credits as a standardized response. The credit functions as an artificial dollar amount applied toward the guarantee when real rebate revenue falls short.
What Is Driving the Shift?
Two market forces are primarily responsible for the rise of rebate credits.
Policy-driven price reductions. Insulin drugs historically offered high rebates. However, the Inflation Reduction Act introduced a $35 monthly insulin cost-sharing cap for Medicare Part D, which paved the way for lower list prices for insulins across commercial plans. These lower list prices have translated into lower rebates. For plan sponsors with contracts guaranteeing rebate levels based on older pricing, that gap has to be reconciled somewhere.
Biosimilar adoption. Originator biologics like Humira and Stelara historically generated high rebates because manufacturers competed aggressively for formulary placement. Based on typical pricing, a monthly supply of Stelara might carry a list cost near $15,000 with a rebate close to $9,500. A biosimilar alternative for the same drug may cost around $2,700 with a rebate of roughly $1,250. The net cost to the plan is lower with the biosimilar, but the rebate revenue drops substantially. When plan utilization shifts toward biosimilars, the total rebate pool shrinks, even if the underlying economics improve.
Because PBM contracts are negotiated in advance and biosimilar adoption was not always predictable at signing, PBMs needed a mechanism to stay compliant with their guarantees as utilization evolved. Rebate credits fill that role.
What This Means for Plan Sponsors
Rebate credits can help account for changing market conditions, but they also introduce complexity that plan sponsors need to understand.
Year-end reconciliation creates a visibility gap. Rebate credits are typically reconciled at the same time as rebate invoices, often at year-end. That timing means plan sponsors may not see the impact until months after the underlying claims have been processed. Without access to ongoing claims data, it can be difficult to identify how credits are being calculated or applied.
Reported rebates may not reflect actual savings. When rebate credits are included in year-end reconciliation, reported rebate totals may blend manufacturer rebates with credit adjustments. This can make it harder to assess PBM performance, contract competitiveness, and whether reported rebate data reflects actual pharmacy benefit performance. Through rebate reconciliation, claims validation, and independent monitoring, Truveris helps plan sponsors connect rebate activity to claim-level cost trends and measurable outcomes.
Net cost improvements can be obscured. A plan that shifts to biosimilars may pay less per claim overall. However, rebate credits can mask the decline in rebate revenue and make it harder to see where savings are coming from. The key question is whether the PBM is optimizing for the lowest net cost, or simply meeting a rebate guarantee number on paper.
Contract flexibility can help reduce administrative burden. Because PBM contracts often span multiple years, rebate credits can help account for market changes that occur mid-term without requiring each plan sponsor contract to be renegotiated immediately.
Practical Steps for Plan Sponsors
Given how rebate credits are structured, there are several areas worth reviewing with your PBM or benefits consultant.
- Clarify how rebate credits appear in your reporting. Understand whether credits are reported separately from manufacturer rebates or bundled together, and request line-item detail where possible.
- Evaluate net cost, not just rebate revenue. For categories where biosimilar adoption is increasing, assess whether the plan is achieving a better total cost outcome, even if rebate income is lower.
- Check your contract for rebate guarantee language. Understand what conditions allow the PBM to apply credits against your guarantee and whether those conditions are clearly defined.
- Ask about reconciliation frequency. If credits are only reconciled annually, consider whether your contract allows for more frequent visibility into how guarantees are being met throughout the year.
What to Expect Going Forward
Rebate credits are likely to remain part of PBM contracts as biosimilars expand and pricing shifts continue. Future contracts may account for these changes through more dynamic rebate guarantee terms instead of separate year-end credits.
For now, plan sponsors should ask for clear visibility into how credits are calculated and applied. Truveris helps monitor rebate performance throughout the year, so credits can be evaluated against actual claims activity rather than a year-end summary.
