Sign up for our daily briefing

Make your busy days simpler with the Axios AM and PM newsletters. Catch up on what's new and why it matters in just 5 minutes.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Catch up on the day's biggest business stories

Subscribe to the Axios Closer newsletter for insights into the day’s business news and trends and why they matter.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Sign up for Axios Pro Rata

Dive into the world of dealmakers across VC, PE and M&A with Axios Pro Rata. Delivered daily to your inbox by Dan Primack and Kia Kokalitcheva.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Sports news worthy of your time

Binge on the stats and stories that drive the sports world with the Axios Sports newsletter. Sign up for free.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Tech news worthy of your time

Get our smart take on technology from the Valley and D.C. with Axios Login. Sign up for free.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Get the inside stories

Get an insider's guide to the new White House with Axios Sneak Peek. Sign up for free.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Catch up on coronavirus stories and special reports, curated by Mike Allen everyday

Catch up on coronavirus stories and special reports, curated by Mike Allen everyday

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Want a daily digest of the top Denver news?

Get a daily digest of the most important stories affecting your hometown with Axios Denver

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Want a daily digest of the top Des Moines news?

Get a daily digest of the most important stories affecting your hometown with the Axios Des Moines newsletter.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Want a daily digest of the top Twin Cities news?

Get a daily digest of the most important stories affecting your hometown with Axios Twin Cities

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Want a daily digest of the top Tampa Bay news?

Get a daily digest of the most important stories affecting your hometown with the Axios Tampa Bay newsletter.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Want a daily digest of the top Charlotte news?

Get a daily digest of the most important stories affecting your hometown with Axios Charlotte

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Want a daily digest of the top Nashville news?

Get a daily digest of the most important stories affecting your hometown with the Axios Nashville newsletter.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Want a daily digest of the top Columbus news?

Get a daily digest of the most important stories affecting your hometown with the Axios Columbus newsletter.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Want a daily digest of the top Dallas news?

Get a daily digest of the most important stories affecting your hometown with the Axios Dallas newsletter.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Want a daily digest of the top Austin news?

Get a daily digest of the most important stories affecting your hometown with the Axios Austin newsletter.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Want a daily digest of the top Atlanta news?

Get a daily digest of the most important stories affecting your hometown with the Axios Atlanta newsletter.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Want a daily digest of the top Philadelphia news?

Get a daily digest of the most important stories affecting your hometown with the Axios Philadelphia newsletter.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Want a daily digest of the top Chicago news?

Get a daily digest of the most important stories affecting your hometown with the Axios Chicago newsletter.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Sign up for Axios NW Arkansas

Stay up-to-date on the most important and interesting stories affecting NW Arkansas, authored by local reporters

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Want a daily digest of the top DC news?

Get a daily digest of the most important stories affecting your hometown with the Axios DC newsletter.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Illustration: Sarah Grillo / Axios

One of the primary functions of a pharmacy benefit manager is to negotiate rebates from the list prices of prescription drugs. In return for the rebates, PBMs agree to cover those medications and make it easier for people to access them. PBMs then pass along the savings to the employers and health plans that hire them, often keeping a cut for themselves.

Yes, but: It's not that simple. As the Express Scripts template contract and new documents show, a PBM can carve out and keep entire portions of fees that look like rebates but aren't technically rebates. It also can play other rebate games that could cost unwitting employers a lot of money.

The details: Lawyers for PBMs carefully define what a "rebate" means. For example, according to the Express Scripts template, "inflation payments" are not considered rebates. PBMs receive inflation payments from drug companies to cover year-over-year hikes to a drug’s list price.

If employers don't ask about inflation payments, PBMs keep them by default. The state of Delaware, however, modified its contract with Express Scripts in 2015 to ensure those inflation payments are routed back to Delaware’s state employees, according to a copy of the contract that is publicly available.

Rebate trades: Alex Schmelzer, a consultant who works with employers on drug benefits, said PBMs have occasionally offered employers discounts on administrative fees — in exchange for giving up all rebates.

Small companies with cash-strapped HR departments don't have a lot of resources to analyze whether it's a good trade for them, and may view a quick discount as attractive. But those rebates, especially on expensive drugs like insulin and autoimmune medications, are huge cash flows for PBMs.

"Employers are giving up a lot of money," Schmelzer said of those kinds of offers. "It almost never works in favor of the employer."

Why it matters: Rebates are the holy grail of the drug supply chain and are the financial hook for many parties at a negotiation table. Schmelzer worked at a Wall Street hedge fund for 18 years analyzing health care but left after seeing the problems in the pharmaceutical system.

  • His tipping point: When Horizon Pharma started charging a high price for its drug Duexis. Even though Duexis is essentially a combination of Advil and Pepcid, PBMs were putting it on their approved drug lists because Horizon was offering steep rebates. The drug company won sales, and the PBM won bigger rebates.
  • "Employers were left holding the bag paying hundreds of dollars for something that should cost pennies," Schmelzer said. "It was another example of rebates and coupons inflating the price of a drug."

From the Express Scripts template:

"Rebates" mean retrospective formulary rebates that are paid to ESI pursuant to the terms of a formulary rebate contract negotiated independently by ESI and directly attributable to the utilization of certain Covered Drugs by Members. For sake of clarity, Rebates do not include, for example, Manufacturer Administrative Fees; inflation payments; product discounts or fees related to the procurement of prescription drug inventories by ESI Specialty Pharmacy or the Mail Service Pharmacy; fees received by ESI from pharmaceutical manufacturers for care management or other services provided in connection with the dispensing of products; or other fee-for-service arrangements whereby pharmaceutical manufacturers generally report the fees paid to ESI or its wholly-owned subsidies for services rendered as "bona fide service fees" pursuant to federal laws and regulations (collectively, "Other Pharma Revenue"). Such laws and regulations, as well as ESI's contracts with pharmaceutical manufacturers, generally prohibit ESI from sharing any such "bona fide service fees" earned by ESI, whether wholly or in part, with any ESI client.

Other parts of this series:

Go deeper

Federal judge blocks Biden's vaccine mandate for federal workers

President Biden speaking from Eisenhower Executive Office Building on Jan. 21. Photo: Yuri Gripas/Abaca/Bloomberg via Getty Images

A federal judge in Texas blocked the Biden administration from enforcing its coronavirus vaccine mandate for federal workers on Friday, citing the outcome of last week's Supreme Court ruling that nullified the administration's vaccine-or-test requirement for large employers.

Why it matters: It's a blow to President Biden's efforts to increase the U.S.' vaccination rates, though much of the federal workforce has already been vaccinated against the virus.

Updated 3 hours ago - Politics & Policy

Omicron dashboard

Illustration: Brendan Lynch/Axios

  1. Health: Pfizer and Moderna boosters overwhelmingly prevent Omicron hospitalizations, CDC finds — Omicron pushes COVID deaths toward 2,000 per day — The pandemic-proof health care giant.
  2. Vaccines: The case for Operation Warp Speed 2.0 — Starbucks drops worker vaccine or test requirement after SCOTUS ruling — Kids' COVID vaccination rates are particularly low in rural America.
  3. Politics: Biden concedes U.S. should have done more testing — Arizona says it "will not be intimidated" by Biden on anti-mask school policies.
  4. World: American Airlines flight to London forced to turn around over mask dispute — WHO: COVID health emergency could end this year — Greece imposes vaccine mandate for people 60 and older — Austria approves COVID vaccine mandate for adults.
  5. Variant tracker
Updated 4 hours ago - Economy & Business

Janet Yellen co-opts Reaganomics phrase for new Davos speech

Treasury Secretary Janet Yellen at a speech this week. Photo: Alex Wong/Getty Images

The U.S. needs to focus on increasing its productive potential, Treasury Secretary Janet Yellen told world leaders Friday, calling for what she terms "modern supply side economics."

Why it matters: She co-opted a phrase traditionally used by political conservatives to describe low-tax and deregulatory policies — and framed the Biden administration's initiatives as the best path forward to achieve greater national prosperity.