PBM Rebate Pass-Through: What the 100 Percent Promise Leaves Out

PBM rebate pass-through excluded fees are the payments a contract leaves outside its definition of rebates, even when it promises to return 100 percent of that defined amount. Manufacturer service payments and affiliated-pharmacy purchasing discounts can sit outside the promise. If you reconcile manufacturer receipts, prepare client reports or review a PBM contract, the important question is which money made it into the calculation. A percentage can be complete while the accounting leaves an entire category elsewhere.

What Does 100 Percent Pass-Through Cover?

It covers the receipts the agreement defines as rebates, for the claims and recipients the agreement includes. Public contracts show materially different answers to that question. The defined term, affiliate provisions, exclusions and final reconciliation determine how much reaches the client.

We want to know what happened before the percentage appeared on the report. Which entity received the manufacturer payment? What did the payment buy? Which part was allocated to this plan? Those questions put the promise beside the money.

Minnesota Leaves Purchasing Discounts Outside the Promise

Minnesota’s Caremark agreement effective January 2021 includes specified formulary, market-share, price-protection, administrative and program payments in its rebate definition. Its pass-through obligation reaches defined rebates received by the PBM or an affiliate.

The same definition excludes described mail-order and specialty purchasing discounts and specified specialty service revenue. That is the distinction a headline percentage loses. Money associated with the drug business can fall outside the rebate category even when every dollar inside that category passes through. All of a smaller pot.

Iredell’s Packet Separates Affiliate Receipts From Manufacturer Services

The proposed participation terms in Iredell County’s May 2026 procurement packet take another approach. The underlying Caremark agreement includes relevant affiliate and group purchasing organization formulary receipts. It separately excludes manufacturer services and affiliated-pharmacy purchasing discounts. Naming affiliates and GPOs does not settle which kinds of their receipts belong in the client’s rebate calculation.

Federal Employee Plans Have Broader Standards

The Office of Personnel Management’s transparency letter, updated in January 2025, applies to fee-for-service and experience-rated HMO carriers in the Federal Employees Health Benefits and Postal Service Health Benefits programs. It makes the administrative fee the PBM’s sole profit source under those standards and reaches broader manufacturer-payment and aggregator or GPO categories.

The letter also reaches the records behind the payment, including pharmacy contracts, claims, invoices and rebate processors. Its manufacturer-payment standards have an exception for contracted Part D arrangements where the sponsor bears the risk.

Fees, Discounts and Spread Follow Different Accounts

An administrative fee paid for managing a plan and a manufacturer payment for services have different payers and purposes. A purchasing discount changes the pharmacy’s cost of acquiring a drug. A rebate or other manufacturer concession can move through an aggregator before a plan receives its allocation. The payment’s recipient and contractual treatment matter alongside its name.

Data fees illustrate why a blanket list of excluded fees fails. Sandia’s procurement scope for services beginning in 2013 included attributable administrative and data fees and intermediary payments in its rebate definition. Minnesota likewise included specified price-protection payments.

Spread pricing concerns a different comparison: what the plan is charged against what the pharmacy is paid. A rebate report answers the manufacturer-payment question. Pharmacy remittances and the plan’s invoices answer the reimbursement question. An affiliated pharmacy adds its acquisition costs and purchasing credits to the picture. A large discount from a benchmark and a complete rebate remittance are separate claims about the price.

The Money Can Arrive After the Claim

A manufacturer’s payment can arrive after dispensing and pass through a different entity from the one that processed the pharmacy claim. The claim, manufacturer invoice, bank receipt and client remittance therefore answer different parts of the same question.

The manufacturer agreement identifies the promised concession. Utilization records connect that agreement to the prescriptions used in the calculation. Reversals and rebills can change that population. The receipt identifies who collected the money. The allocation identifies which client gets it. A minimum rebate reconciliation then connects amounts already credited with the final obligation under the client agreement.

A total on a quarterly report cannot show all those relationships by itself. Claim-level records identify the included prescriptions and adjustments. Aggregate records show what was received, allocated and remitted across the covered business. We connect both to the contract version in effect for the period. That is where an excluded claim, a retained fee or an affiliate receipt becomes visible.

Passing Rebates to the Plan Does Not Set the Patient’s Price

A patient can pay a share of a price that does not reflect the rebate the plan receives. Passing rebates to the plan and reducing what the patient pays at the pharmacy are different outcomes.

Medicare Part D supplies a concrete example. The pharmacy-concession rule effective in January 2024 changed negotiated price to the pharmacy’s lowest possible reimbursement, including pharmacy price concessions. It separately addresses non-pharmacy concessions passed through to enrollees at the point of sale. The person preparing a client savings report and the person handling patient cost-sharing complaints may be looking at different parts of the same drug’s price.

The Minimum Rebate Commitment Has Its Own Calculation

A contractual minimum rebate commitment can put the risk of a minimum return on the PBM. Eligible claims, excluded products, formulary conditions and permitted offsets determine what that promise covers. The true-up reconciles amounts already credited with the final obligation. The minimum rebate commitment belongs beside the receipt and allocation records when assessing whether the full pass-through occurred.

Under the proposed Iredell terms, Employers Health Purchasing Corporation receives quarterly payments toward the minimum rebate commitment and later allocates defined overperformance to participating groups. Excluded claims, benefit-design conditions and credits for reductions in the manufacturer’s list price affect the calculation. There is an intermediate recipient and a later calculation between the headline and the county’s final credit.

Delaware’s Express Scripts amendment from 2015 supplies another useful distinction. It bars offsetting one contractual performance category’s shortfall with another category’s surplus and carries a separate inflation-protection line item. Whether categories can offset each other changes what a favorable overall result tells the client.

Audit access determines how much of that calculation the client can see. OPM’s updated standards reach supporting manufacturer-payment records and rebate processors, and prevent the PBM from dictating the auditor or audit frequency. A review confined to paid pharmacy claims leaves the manufacturer receipt and allocation questions elsewhere.

New Federal Terms Have Their Own Start Date

The Consolidated Appropriations Act, 2026 adds a broader pass-through condition for covered group health plans under the Employee Retirement Income Security Act. It reaches rebates, fees, alternative discounts and other remuneration tied to the plan’s drug utilization or spending, while preserving separate treatment for bona fide service fees.

The condition applies for plan years beginning on or after the date 30 months after its February 3, 2026 enactment, to contracts entered into, renewed or extended on or after that effective date. Existing contracts keep their terms until a renewal or extension brings them under the new requirement.

What the Compass Rose Audit Found Behind the Rebate Report

OPM’s Office of the Inspector General found a rebate shortfall by comparing manufacturer agreements with what reached Compass Rose and the federal employee health program. Its November 2024 audit examined Express Scripts’ administration of Compass Rose’s pharmacy benefits.

For the rebate component, the audit reported that Ascent Health Services collected $70,382,646 for the carrier and program during June 2019 through December 2021, while $60,343,427 passed through. Auditors credited payments under the minimum rebate commitment against the shortfall. The carrier reported that Express Scripts wired the remaining $9,524,945 rebate principal in March 2024 and that the dollars returned to the program.

The report attributed the retained portion to lower rebate percentages agreed internally between Express Scripts and Ascent than those in the manufacturer agreements. Express Scripts disputed the characterization of Ascent as a sister company, pointing to other owners.

In its appended response, Cigna said the operations complied with the agreement and described the credit as a voluntary resolution of OIG’s interpretation. We see a striking version of compliance: money wired back after an audit found the federal employee health program had been shortchanged.

The audit also found that performance obligations were accurately reported and credited. The performance review came out clean while the manufacturer-rebate review found money due back. We would want both results on the table before accepting a claim that the rebate accounting was complete.

When Rebates Become Service Fees on the Report

The government alleged that Rite Aid’s Elixir Insurance Company excluded retained manufacturer rebates from Medicare Part D reports by classifying them as bona fide service fees. Rite Aid and Elixir agreed to pay $101 million in the 2024 settlement. The whistleblower’s complaint alleged that Elixir misclassified $58 million to $65 million in retained rebates each year since 2016. The government’s allegation concerned reports that changed the reconciliation determining Medicare’s payment.

The complaint challenged whether the PBM, which it calls EPS, performed any manufacturer services in exchange for the retained rebates:

The government’s settlement account alleged retention without manufacturers’ knowledge and fees that failed the applicable service-fee definition. We want to know what work the fee paid for. The service agreement, the work supposedly performed and the report that excluded the money answer that question. For a client-contract inquiry, the same payment documents help answer what the contract promised and what the client actually received.

The Insider Who Knows Why the Numbers Changed

An insider can connect a contract definition to a classification decision and its payment effect. A reconciliation analyst may know why certain claims disappeared from the eligible population. Someone working with manufacturer or aggregator accounts may know which entity received a payment and which account kept it. A carrier auditor may know whether the review reached those receipts or stopped at pharmacy claims.

Those connections show what the plan was told, what the contract promised, who knew and how much it cost. When someone knowingly uses false claims or reports to obtain government money, we examine the gap as a potential False Claims Act case. The manufacturer receipt, allocation workbook, client report, payment certification and final remittance can show where the account diverged from the promise. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

When You Know What Was Left Out

If you see a gap between manufacturer receipts and a client rebate report, speak with our whistleblower experts about the promise and the payments. We work with you to trace the receipt, the classification and the decisions behind the reported amount, building your strongest PBM whistleblower case. We bring in healthcare fraud whistleblower lawyers who understand PBM contracts and rebate reporting, and stay beside you through the whole process.