This paper examines how commercial plan sponsors can evaluate a transition from retrospective drug rebates to alternative point-of-sale (POS) net price models. Because these models primarily differ based on how rebate value reaches the plan and its members, we look beyond static cost comparisons to the effects of cash flow and the time value of money (TVM). Together, these factors provide a more complete picture of each option’s true cost.
Our analysis uses an illustrative plan sponsor on a cash accounting basis that is transitioning to a net price or POS rebate model (where rebate discounts and net price remain unchanged). The findings reveal three key insights:
- When a plan’s cash flow is considered, net plan liability decreases over a two-year transition horizon because retrospective rebates are still being collected from the prior year. Evaluated without cash flow, the retrospective rebate model can appear less costly than the net price or POS rebate options, but that comparison is incomplete.
- Members benefit through lower cost sharing for brand and specialty drugs, particularly if enrolled in a consumer-driven or coinsurance plan design.
- Plan sponsor economics improve under a net price model versus a traditional POS rebate model because manufacturers pass rebate value through to a lower net drug price at the pharmacy counter. Assuming equivalent discounts, plans realize a TVM benefit of approximately $1.25 per member per month (PMPM). Plans on a cash accounting basis have more to gain because they benefit from the cash float rather than through delayed reimbursement.
Overall, among the POS approaches, the emerging net price model produces the most favorable plan results over time because manufacturers—not the plan—fund the TVM component by embedding the rebate directly in the pharmacy-counter price, while also improving transparency, cash accounting, auditability, predictability, and alignment of incentives and avoiding the additional funding cost present in traditional POS rebate arrangements.