Express Scripts’ announcement about drug rebates is a step forward, but not earth-shattering change
In an October 9, 2025 blog, I applauded President Donald Trump’s efforts to redefine drug price in America. At the same time, I questioned whether some of the deals he has announced with brand drug manufacturers (aka Big Pharma) were truly game changers for drug price in America. I urged the president not to settle for these deals but to continue to push forward on true price reform.
Along comes Cigna’s Express Scripts’ announcement that it would begin the process of migrating in part from the current gross price and rebate model to net drug pricing. This upends both its brand drug contracts with drug makers but also with insurers and employer groups.
In part the announcement was precipitated by the Trump administration’s own demands that pharmacy benefits managers (PBMs) like Express Scripts abandon the rebate structure in America or it would take action to end them. So, I applaud the president again for the progress made. At least part of the move by a big PBM to transition also has been brought about by the rise of transparent PBMs, which have gained market share from the Big 3 PBM behemoths – CVS Caremark, Express Scripts, and United’s OptumRx.
But as I said with the Big Pharma price concessions, I am dubious about this leading to true reform. If I am skeptical of Big Pharma coming with its pockets open and bandying about concessions, the same holds true for PBMs. On one hand, the Express Scripts changes seem very clearly rooted in a fundamental shift in the market. I can’t say that about the Big Pharma proposals. At the same time, the details of the proposal do not appear to be the fundamental change Trump is looking for. It does not call for the absolute elimination of rebates and therein likes my skepticism.
Let’s dive deep into the issue.
So, what are drug rebates anyway?
As opposed to a true net price being set as we have with generics (well, sort of), brand drugs have list prices and then a rebate that is granted to PBMs. Those rebates are meant to do two things: (1) ensure the best formulary placement on a PBMs drug list and (2) discriminate against other drugs in the same or similar classes, effectively increasing their prices.
The problem with rebates is that only in a low percentage of transactions is the net price (gross price minus rebate) passed on to the consumers at the drug counter. That means that most consumers (some insurers and PBMs argue they factor these retrospective rebates into cost-sharing for consumers) are paying based on the gross price. Given the high price of brand drugs, consumers tend to pay either much higher fixed copays or percentage cost-sharing because of the rebate structure. This makes such drugs unaffordable even for insured Americans.
What’s more, some parts of the rebates are retained by PBMs (PBMs say a small fraction and shrinking) and by health plans and employer groups. A case can be made that the rebates help fund other aspects of health plan benefits (and their elimination would certainly cause complications elsewhere). It is also true that they offset health plan and employer costs. That is not a bad thing in and of itself. But if drugs are unreasonably inflationary (a topic for another day), rebates tend to make them even more so. Brand drug makers constantly inflate price to offer greater rebates to preserve their deals with PBMs and the best placement on drug lists.
Yes, getting rid of rebates makes sense
Overall, getting rid of rebates and gross pricing does make sense. It is consumer friendly. It would lower costs at the drug counter for millions, especially those with chronic conditions struggling to afford their medications. This will promote medication adherence and save dollars elsewhere by keeping conditions in check. And Express Scripts’ “lowest price” approach described below also is an important reform that saves consumers.
But remember that these are just one step in drug price reform. Even if American consumers were paying net prices for drugs, they would pay manyfold more than in other countries.
The details on the Express Scripts announcement
Express Scripts will phase out prescription drug rebates for brand drugs. Cigna will eliminate rebates in many of its commercial health plans in 2027. The phaseout will expand to Express Scripts clients starting in 2028 as the default option. The goal is to get half of employer and health plan clients to adopt the model within three years.
The new model will save members an average of 30% each month on brand drugs. Patients will pay the lowest available cost — whether the PBM’s negotiated rate, the consumer’s benefit copay, the cash price, or a direct-to-consumer price. It will lean on technology to compare pricing options for patients and ensure they see the lowest cost when they pick up a prescription.
In addition, Express Scripts will adopt a cost-plus reimbursement model for pharmacies, paying them based on their cost for medications with a dispensing fee added in.
Is it real reform?
The PBM’s phaseout program could mean a major transformation of the PBM industry, moving billions of dollars to offset consumer costs at the expense of rebates to insurers and employers as well as some amounts retained by PBMs. But while it appears to be a sea change, it may not be all that the hype says it is.
First it does not eliminate rebates, which in my mind is fundamental to drug price reform.
Second, it is at best a hybrid approach, where rebates and net pricing will stand side-by-side in product offerings. That hybrid approach will continue to mean all the negatives of rebates continue to impact and drain the system.
Third, employers likely will continue to be enticed to stay with the rebates. I noted above that some rebates are passed on at the drug counter through what are known as point-of-sale rebate programs. Indeed, some states mandate this in at-risk insurance regulated by the state. The literature seems to indicate, though, that less than 15% of all employers share in some or all of the rebates at the point of sale. So, the point-of-sale rebates are not well adopted and how meaningfully different will the new net-price rebate program really be? That a hybrid system will continue could very well mean employer groups and health plans stay with the rebate model. Indeed, Express Scripts calls the conversion voluntary and not mandatory for employer groups, although Cigna’s commercial risk business will totally make the leap to net price.
Breaking the juggernaut that is rebates is tough. As noted above, employer groups use the rebates in many different ways when they arrive retrospectively. They credit the rebates to other areas of the benefit design or buy down their overall costs of healthcare. While not all rebates are truly passed through, the “savings” look attractive to employers and health plans. Therefore, employers and health plans are enticed by rebates and may want to keep them in place. And PBMs continue to like them too and have every reason to not phase them out entirely.
Would there be fallout if rebates went away?
For sure — some. Other benefits could erode. Premiums could increase. There will be winners and losers. But it should not increase the overall cost of healthcare as a whole. It may be more about adaptation. And there could be very real benefits of rationalizing drug price in America.
- It increases overall transparency in at least part of the drug channel.
- It gives consumers some relief at the drug counter, thereby improving adherence and affordability to some degree.
- It takes some inflation generated by the rebates themselves out of the system.
- It promotes accountability.
PBMs cannot write the reform script
But allowing PBMs to write the script here makes no sense. Allowing parts of the self-interested drug industry in this case to engineer reform on a piecemeal is not in America’s best interests. Indeed, we have seen the three big PBMs (which control 70% to 80% of the market) announce with fanfare reforms in the past. Sadly, the complaints continue.
More radical change is needed lest the PBMs and Big Pharma allow the injurious rebate system to continue on distorting the market. Whatever the impact to some degree on other areas of healthcare, a hybrid system does not promote true drug price reform, which has to be the goal here. In fact, it continues much of the opaqueness that plaques drugs in America.
As with the drug price concessions from Big Pharma, Trump should not back away from rebate reform because of PBM hybrid concessions. It delays the radical reform that is needed – this includes lowering drug price overall, eliminating rebates entirely, and bringing unprecedented transparency, disclosure, and reporting throughout the drug channel. All financial transactions should be disclosed and scrutinized. The truth is there is so much we don’t know. That is the point to Express Script’s hybrid model. They don’t want us to know all the dirty little secrets.
#drugpricing #pbms #branddrugmakers #healthcarereform
— Marc S. Ryan
