Rebate
A discount paid by a drug manufacturer to an insurer or PBM after a sale, reducing the effective price below the list price.
How It Works
Rebates are the hidden discounts that make drug pricing so opaque. Manufacturers pay rebates to PBMs and insurers in exchange for favorable formulary placement — putting the drug on a preferred tier so more patients use it. Rebates can range from 10% to over 70% of a drug's list price, but they don't always reduce what patients pay at the pharmacy counter. A drug with a $500 list price and a 50% rebate effectively costs the insurer $250, but a patient in the deductible phase may still pay the full $500. The Inflation Reduction Act is beginning to change this by requiring that insulin rebates flow to patients at the point of sale.
Related Terms
- Wholesale Acquisition Cost (WAC) — The manufacturer's list price for a drug sold to wholesalers — often called the "sticker price" before any rebates or discounts.
- Pharmacy Benefit Manager (PBM) — A company that acts as a middleman between drug manufacturers, insurers, and pharmacies — negotiating drug prices, managing formularies, and processing claims.
- Formulary — A list of prescription drugs covered by an insurance plan, organized into tiers that determine how much the patient pays for each drug.
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About This Definition
This definition is part of the DrugPrice Drug Pricing Glossary — 34 terms explaining how prescription drug pricing works in the United States. All definitions are written in plain language for patients, caregivers, journalists, and healthcare professionals.