By Aaron McKeon-Fish, Managing Partner and Arianna Noya, Senior Consultant

The U.S. pharmaceutical drug channel is increasingly complex, involving numerous stakeholders and intricate agreements that impact the economics surrounding prescription drugs. The emergence of provider rebate aggregators is one of the more recent examples of this complexity. Their business models are intentionally opaque, and their reach throughout the channel via partnerships has grown significantly in recent years. As a result, it’s critical for manufacturers to understand the prevalence of these entities, and the impact they have on channel economics, particularly to their bottom line.

Defining the Provider Rebate Aggregator Business Model

While payer rebate aggregators are well documented, provider rebate aggregators (PRAs) are much less understood. These entities act as intermediaries between provider organizations (hospitals, IDNs, clinics, LTCs, etc.) and PBMs to facilitate economic value capture across stakeholders. They achieve this by identifying and submitting eligible drug claims from the provider organization to the PBM for rebate capture from the manufacturer. In this model, eligible drug claims are defined as those tied to an access rebate (with the PBM) where the rebate has not been paid, such as medical drugs on the pharmacy benefit (a drug that can be HCP- or self-administered) or cash payments.

When a PRA submits an eligible drug claim to the PBM, it is then shared with the corresponding manufacturer, who remits the access rebate back to the PBM, much like a standard rebate capture process. Unlike the standard process, however, the rebates are not captured by the PBM and retained or passed through to their payer/employer group clients. Instead, the rebates are distributed across all stakeholders involved: PBMs, payer rebate aggregators, PRAs and provider organizations. All stakeholders share in the value captured, with the distribution dependent on their individual agreements. Due to the opacity of PRA business models, however, provider organizations often are unaware of where the value is coming from.

Implications for Provider Organizations, PBMs & Manufacturers

The PRA business model provides financial benefits for numerous stakeholders across the drug channel, particularly for provider organizations and PBMs. For provider organizations, partnering with a PRA creates an additional revenue stream that requires almost no resources to realize. This is meaningful, especially considering the economic headwinds these organizations face, such as declining reimbursement, increasing cost of care and market competition driving increasing consolidation.

PBMs, in many ways, are at the heart of this highly intricate model. They play a vital role in facilitating rebate capture and dissemination across stakeholders. Similar to provider organizations, their partnership with PRAs enhances the value they can extract from the drug channel. As their claims volume increases, so does their rebate capture, supporting revenue diversification in the wake of ongoing pressures such as Part D redesign and rebate capture model scrutiny.

All of the financial benefits PRAs provide come at the expense of drug manufacturers, who in most cases are unknowingly paying rebates on claims they had not intended to. Examples of this include paying duplicate rebates on a single claim and paying rebates that don’t comply with the negotiated PBM access requirements. The lack of PRA business model transparency makes detecting and policing this exposure very difficult for manufacturers. While manufacturers experience different levels of exposure depending on their portfolio dynamics, many face substantial impact to gross-to-net and profitability.

Mitigating Risk in an Evolving, Obscure Drug Channel

Rigorous understanding of the complex drug channel for manufacturers is essential as PRAs, and other entities, continue to influence stakeholder economics. As we’ve discussed, this is no small task with the number of stakeholders involved, lack of available data and opacity of incentives. The PRA business model is complex, and awareness of its intricacies is needed, especially given the significant risks they can present.

First, manufacturers should identify the key PRAs, their business models, and affiliations as a baseline for detecting risk. As PRA partnerships with provider organizations are likely to grow, ongoing monitoring of emerging affiliations is critical. Second, manufacturers should gain a robust understanding of their portfolio exposure by identifying drugs tied to access rebates, and the associated volume purchased through provider organizations partnering with PRAs. While further evaluation is needed, this step provides direction on the degree of exposure.

An already complex drug channel is becoming more complicated. Manufacturers can mitigate exposure of unintended value extraction from stakeholders by developing proactive strategies. Through a robust understanding of the channel, and leveraging the right data, they can ensure their financial exposure is minimized.

Want to learn more about how The Dedham Group can help you understand the evolving drug channel and navigate your GTN management strategies? Contact us.