Imagine a circular track where every participant, including the drug manufacturer, PBM, and plan sponsor, is running hard but not moving forward. That is the 360-degree rebate feedback loop. It begins with the intent to control costs but often leads to higher drug prices, increased plan spend, and more out-of-pocket costs for members.

In this loop, a manufacturer raises a drug’s list price to fund larger rebates. The PBM negotiates higher rebate payments and favors those higher-priced drugs on its formulary. The plan ends up paying more at the point of sale, while the PBM collects a larger rebate or spread behind the scenes. Manufacturers, trying to stay competitive, raise prices again to maintain access, and the cycle repeats.

When plan sponsors focus only on rebate size instead of the economics behind it, the loop strengthens. The result is an illusion of savings that masks a growing total cost of pharmacy care (TCoPC).

Why Transparency Matters

True transparency in rebates means more than receiving a flat “rebate guarantee per script.” It means understanding where rebates originate, how they are calculated, and how much is retained by intermediaries such as PBMs, rebate aggregators, or manufacturer-affiliated entities.

Opaque rebate arrangements often hide spreads and misaligned incentives. For example, if a PBM secures $200 per claim from a manufacturer but only passes $150 to the plan sponsor, the $50 difference becomes a silent profit center. Without clear documentation and audit rights, that gap remains invisible.

Transparency ensures that plan sponsors can trace every dollar from manufacturer to member, revealing who benefits and who pays. It brings the entire rebate value chain into focus and exposes what is commonly called the Gross-to-Net (GTN) gap.

The Hidden Margin

The GTN gap is the difference between a drug’s list price (gross) and what manufacturers actually realize after all rebates, fees, and discounts (net). For many brand drugs, this gap can exceed 50 percent. Manufacturers inflate list prices to accommodate larger rebates and retain formulary access, while PBMs market those rebates as plan savings. In reality, both the plan and its members pay higher prices upfront to fund the rebate economy.

Understanding GTN is essential for employers because it reveals the disconnect between what is billed and what is truly paid. Closing the GTN gap through full transparency can directly reduce total plan costs and improve member affordability.

Turning the Loop into a Closed System

A closed-loop rebate process works like a well-calibrated thermostat that measures, tracks, and adjusts. When rebate data flows openly back to the plan sponsor, employers can make smarter formulary decisions that prioritize clinical value over rebate size.

This type of process increases generic dispensing rates, optimizes formulary design, and drives measurable improvement in overall plan performance. It shifts the focus from maximizing rebate yield to reducing the total cost of pharmacy care.

Competitive Advantage Through Clarity

Transparency should not be viewed as a compliance requirement. It is a competitive advantage. Employers who understand their PBM’s rebate model can negotiate from a position of strength, identify hidden costs, and build pharmacy benefits that align with fiduciary responsibility.

In a market where healthcare inflation and specialty drug costs continue to climb, clarity is not optional. It is essential to long-term sustainability. A transparent rebate structure not only builds trust but also allows employers to turn data into strategic leverage by controlling costs and improving outcomes over time.

What Employers Should Do

Ask your PBM to provide documentation that clearly traces rebate sources and cash flows through every step of the value chain. A truly transparent PBM relationship should help you:

• Avoid rebate aggregator formularies. These often add another opaque layer that dilutes value and complicates auditability.
• Achieve a 91%–93% generic dispense rate (GDR). A strong GDR is one of the most reliable indicators of effective formulary management and cost efficiency.
• Limit eligibility exclusions that reduce rebate yield. Overly restrictive eligibility rules can block your plan from capturing legitimate rebate value.
• Eliminate conflicts of interest. Your PBM should act solely in your plan’s best interest, with no hidden financial incentives that distort formulary decisions.

If your PBM cannot meet these standards, the rebate feedback loop is likely working against you, not for you.

Bottom line

The rebate feedback loop will persist until employers demand full visibility into how rebates are earned, shared, and retained. Closing that loop allows plan sponsors to reduce costs, improve member outcomes, and ensure every rebate dollar serves the plan’s best interest rather than the middlemen.

When PBMs operate without fiduciary duty, employees and their families pay the price through inflated drug costs, hidden fees, and limited access to affordable medications. TransparentRx takes a different approach. As a fiduciary PBM, we are legally bound to act in your best interest eliminating conflicts of interest, disclosing every dollar, and focusing on better adherence and outcomes. Partner with TransparentRx to ensure your pharmacy benefits strategy delivers real value where it matters most: at the point of care.