Employers beware: AWP and Rebate Discounts Are How PBMs Hide High Costs

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September 7, 2023

The direct path to reducing pharmacy costs isn't through rebates

At SmithRx we think about pharmacy benefits through the lens of self-insured employers. What these employers want is lower pharmacy costs, not pharmacy jargon.  We measure our success in terms of real dollars that the plan is spending.  Our job is to drive down plan spend, and keep it down.What does this mean in practice?  Let’s look at Humira biosimilar, Yusimry, as an example:

SmithRx, through our partnership with Mark Cuban Cost Plus Drugs, can source the drug for less than $1000/month with no rebate. Legacy PBMs might instead prioritize a different Humira biosimilar, Amjevita, for over $6,000/month with a rebate of around $3,000/month. Even though Yusimry is significantly cheaper, they prioritize the more expensive drug so they can use the $3,000/month rebate to hit their rebate guarantees.

Legacy PBMs try to distract from net lower costs by offering these rebate guarantees: a set amount they commit to giving back to their clients. The issue with rebate guarantees is that in order to deliver them, they choose a more expensive drug so that they can receive a larger rebate. While your “Rebate Guarantee” is achieved, your plan cost has actually increased!

Other cost management techniques like “AWP Discounts” also fail to deliver

The big legacy PBMs like to use “Pharmacy Network Guarantees (AWP Discounts)” to track their own performance because it’s easy for them to manipulate those systems. Here are some of the other ways that legacy PBMs use pharmacy network guarantees (AWP discounts) to create an illusion of accountability, while actually driving up costs:

  • Promoting drugs with higher AWP discounts: Similar to "Rebate Guarantees", "AWP Discount Guarantees" look attractive because they hold the legacy PBM to what look like large percentage discounts on the average wholesale price of a drug. In fact those same legacy PBMs are choosing more expensive drugs in order to achieve their AWP discount guarantee.  Clients still end up paying higher net costs.
  • Manipulating contract language around channels, exclusions, and days supply: legacy PBMs have turned contract manipulation into a science.  AWP discount guarantees and rebate guarantees are complicated mechanisms, invented by legacy PBMs, to ensure they can always create loopholes.
  • Shifting value from “pass-through” clients to “traditional” clients:  are you in a “pass-through” relationship with a legacy PBM who also offers “traditional” services?  If so, watch out.  PBMs who offer both options will use their pass-through clients to subsidize their traditional clients.  They set up their pass-through clients to pay more at the pharmacy (passed through) while having pharmacies charge their traditional clients less (so they can keep the larger spread).

For these reasons, SmithRx cautions our clients against relying on AWP Discount Guarantees and Rebate Guarantees when managing their PBM relationships. These outdated metrics can have the exact opposite impact of what is desired and drive plan costs up instead of down.  It's important to stay focused on the only number that matters: the bottom line.

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A new type of pharmacy benefits manager, SmithRx is working to reduce pharmacy costs by reimagining the traditional PBM as a Drug Acquisition Platform built on transparent modern technology that aligns with the needs of our customers.