Why rebate reform is essential for Californians

What is the prescription drug rebate system?

Under the current prescription drug rebate system, health plans hire pharmacy benefit managers (PBMs) to negotiate prescription drug prices with drug manufacturers and create the health plan’s formulary. Rebates are used as a leveraging tool during these negotiations.

On average, health plans and PBMs negotiate 40% off a medicine’s list price through rebates. However, most of the time these discounts are not passed onto the consumer and instead are pocketed for profit, often leading to the consumer paying much higher than their insurance company paid for the exact same medication.


The current rebate system is not benefiting patients as it should.

In 2021, rebates totaled $1.7 billion in California, up from $1.4 billion in 2020 and $1.2 billion in 2019; while patients continue to pay inflated costs. CVS Caremark, Express Scripts, and OptumRx are the three main perpetrators abusing these loopholes, owning 80% of the total market share. Without regulation and consistency of policies and procedures, rebates will not be passed onto patients. The overcharging of essential medications has resulted in 30% of Americans having to ration their medications or not take them as prescribed.

West Virginia was the first state to pass rebate reform legislation that shared 100% of rebates with patients to help offset the cost of their prescription drugs. California now has the opportunity to follow their lead with the recent introduction of Senate Bill 873 (Bradford), which will make prescriptions more affordable by requiring patients receive at least 90% of rebates at the point-of-sale.

Reforming California’s current rebate system will lower patients’ out-of-pocket costs, leading to improved adherence rates.




  • Rebates are a form of price concession paid by a pharmaceutical manufacturer to the health plan sponsor or the pharmacy benefit manager working on the plan’s behalf.

List price:

  • List prices are the initial price of a drug that a manufacturer sets, and what a patient pays at the pharmacy counter.

Pharmacy Benefit Managers (PBMs):

  • PBMs are companies that manage prescription drug benefits on behalf of health insurers, Medicare Part D drug plans, large employers, and other payers. These middlemen create formularies, negotiate rebates with manufacturers, process claims, create pharmacy networks, review drug utilization, among other things.


  • A formulary is the list of generic and brand-name prescription drugs covered by a specific health insurance plan.