Declining PBM Rebates: What Employers Need to Do Now

Declining PBM rebates are forcing employers to rethink how they manage pharmacy benefits and protect budget stability.

For years, rebate checks acted as a predictable offset to rising drug prices, but structural industry shifts now mean those dollars are shrinking fast. Employers who understand why PBM rebates are declining (and what new strategies they must adopt) will be far better prepared for the next era of drug benefit management.

Because PBM rebates touch every part of a pharmacy benefit plan, employers can no longer rely on rebate projections as a budgeting anchor. Since decreasing rebates reduce cash flow, plan sponsors are recognizing the urgent need for transparent pricing models that aren’t affected by rebate volatility. Understanding how these PBM rebates flow through your plan is now an essential facet for financial planning.

Several industry dynamics are accelerating this change:  

• Manufacturers are lowering list prices, which inherently reduces the size of rebate payments.  
• Biosimilar competition is expanding, pressuring net prices downward—but also shrinking the rebate opportunities that once favored high-priced brand drugs. According to a recent analysis, rebate-driven formularies have significantly slowed biosimilar adoption, costing the system billions more than necessary.  
• Federal transparency efforts are increasing, forcing PBMs to adjust pricing and contract structures.  
• Contract terms are evolving, often incorporating “rebate credit,” “lower-of,” or “guaranteed net cost” provisions that reduce employer rebates when members choose lower-cost drugs. Research from a HMPI journal highlights how these contract mechanics can incentivize PBMs to favor high-list-price drugs over low-cost alternatives.  

The outcome is the same across the board: rebate dollars are becoming less reliable.  

Why Declining PBM Rebates Require a New Employer Strategy

A decline in rebates, even a modest one, can create significant downstream effects:  

• Cash flow becomes less predictable, particularly for employers who rely on rebate dollars to fund plan design or offset premiums.  
• Pharmacy budgets tighten, even as specialty drug adoption continues to climb. 
• Plan design adjustments may become necessary, or employers may need to introduce new cost-management strategies.  

A recent employer survey found that many organizations are actively reassessing rebate-driven models and exploring alternate approaches to stabilize drug spend.  

Three Steps Employers Should Take Now  

To protect financial stability, employers should take a proactive approach:  

1. Re-examine your PBM contract closely.  
Identify terms such as “rebate credit,” “guaranteed net cost,” or requirements tied to biosimilar usage. These clauses can significantly reduce or eliminate rebates when members opt for lower-cost therapies, something the Pharmacy Times notes have contributed to slower biosimilar uptake nationwide.  

2. Quantify how dependent your plan is on rebate revenue.  
Model scenarios showing what happens if rebates fall by 20%, 40%, or more. You may uncover larger financial risk exposure than you expect.  

3. Evaluate other solutions now.  
Pass-through pricing, expanded procurement strategies, and innovative cost-containment models are becoming essential tools for employers. A Forbes analysis on PBM transparency underscores how traditional rebate structures can obscure true drug costs, reinforcing the need for models that prioritize net price clarity.  

Rebates Aren’t a Long-Term Strategy—Predictability Is  

The era of ever-growing rebates is ending. Employers that understand this shift now, and recalibrate their pharmacy strategy accordingly, will be far better positioned as the market continues to evolve.  

At SHARx, we’re helping organizations build benefit strategies that don’t rely on unpredictable rebate cycles. SHARx empowers brokers to deliver measurable impact and improve access to high-cost medications—without compromising the member experience.  

If you’d like a no-pressure review of how shrinking rebates may affect your plan’s economics, our team is ready to help.