The idea is simple enough to fit on an index card: instead of manufacturer rebates flowing to pharmacy benefit managers and plan sponsors at the end of a contract period, they should flow to patients at the pharmacy counter, reducing their out-of-pocket cost at the moment they actually fill the prescription. The clinical logic is robust — research published in Health Affairs and elsewhere has consistently linked high patient cost-sharing to medication non-adherence, and medication non-adherence to worse clinical outcomes and higher downstream costs. The political support is nominally bipartisan. The regulatory pathway has been identified and analyzed. The reform has nonetheless failed to materialize, across three presidential administrations, in any meaningful commercial-market scale.
What the Reform Would Actually Do
The mechanics of point-of-sale rebate application require PBMs to apply the negotiated manufacturer discount at the time of dispensing rather than accumulating it as a retrospective payment at the end of the rebate cycle. For patients in deductible or cost-sharing phases — those most vulnerable to adherence barriers from high out-of-pocket costs — the immediate effect would be a reduction in their pharmacy outlay that directly reflects the discount structure the plan has already negotiated. For PBMs and plan sponsors, it represents a cash flow restructuring: the rebate revenue that currently functions as a retrospective financial benefit would be converted into a prospective patient benefit, reducing the plan’s rebate income while presumably reducing its downstream medical costs from non-adherence.
The Trump administration proposed a rule in 2019 — the HHS safe harbor rebate rule — that would have restructured the existing anti-kickback statute safe harbor for manufacturer-to-PBM rebates to require that discounts flow directly to patients. The rule was estimated to reduce patient out-of-pocket costs meaningfully while increasing premiums for most enrollees, as the loss of rebate revenue to plan sponsors would require premium recovery. CBO’s scoring of the rule found a net increase in federal expenditures over ten years, as the premium increases would affect government-subsidized coverage. The rule was withdrawn before implementation. The political calculus — a visible premium increase now, a diffuse adherence benefit over years — was untenable in an election year.
The Premium Increase Problem
The premium increase problem is the central political obstacle to point-of-sale reform, and it is more complex than it first appears. Rebate revenue currently serves as a subsidy to plan premiums — it reduces the premium-equivalent cost of benefits for all enrollees, not just those using the rebated drugs. Eliminating that subsidy without a corresponding reduction in list prices — which requires manufacturer cooperation that rebate reform alone does not guarantee — produces a visible distributional shift: patients on high-cost drugs pay less out of pocket, while all enrollees pay higher premiums. The winners are sicker patients with complex drug regimens. The losers are healthy enrollees who pay premiums but draw few pharmacy benefits. Both groups vote.
The Inflation Reduction Act included a Medicare Part D out-of-pocket cap and restructured the catastrophic coverage phase, which partially addresses the adherence problem for high-cost specialty drug patients in Medicare. It did not address the point-of-sale rebate question in the commercial market. The commercial market reform continues to be proposed in various legislative vehicles, most recently as part of PBM transparency bills in the Senate, without reaching the floor for a vote. The structural interests aligned against it — PBMs whose revenue models depend on retrospective rebate flows, plan sponsors who use rebate income to offset administrative costs — have proved more durable than the bipartisan sympathy for the underlying logic.
State-Level Experiments and Their Limits
Several states have enacted or proposed legislation requiring PBMs to pass through a minimum percentage of rebate value to plan sponsors or to patients, with varying definitions of what counts as a pass-through and at what point in the distribution chain. These state-level experiments are valuable as policy laboratories but face a fundamental preemption barrier: ERISA preempts state regulation of self-insured employer health plans, which cover the majority of commercially insured Americans. State rebate pass-through mandates apply to fully insured plans — a shrinking share of the commercial market — leaving the largest and most relevant market segment unaddressed. Federal action is not optional in this domain; it is the only mechanism with sufficient scope to matter at scale. And federal action, for reasons that the past decade has documented thoroughly, remains elusive.
