Mark Cuban Sounds Alarm on PBM Rebates, Citing Employee Costs

In a recent LinkedIn post, Mark Cuban sounds a strong warning to CEOs regarding the practices of Pharmacy Benefit Managers (PBMs) and the impact of rebates on their employees. The billionaire investor and entrepreneur argues that the common practice of accepting PBM rebates is a significant mistake that ultimately shifts costs onto the company’s sickest employees.

Cuban’s central thesis is that the “list price” of brand medications is composed of two parts: the rebate and the net price paid to the manufacturer. He explains the flow of these funds, highlighting how employees, during their deductible phase, pay the full list price. This money goes to the PBM, which then retains a portion of the rebate before passing the remainder to the employer. This structure, Cuban asserts, means that employees are effectively footing the bill for the rebates their companies receive.

YOUR SICKEST EMPLOYEES ARE THE ONES PAYING THE REBATE TO YOU

THEY ARE INDIRECTLY WRITING CHECKS TO YOUR COMPANY.

THATS HOW REBATES WORK.

He further elaborates on the deceptive nature of higher-deductible plans in this context. According to Cuban, such plans, when combined with PBM rebate structures, do not necessarily lead to savings for the employer but rather compel employees to pay larger sums directly.

The Mechanics of Rebate Schemes

Cuban meticulously breaks down how PBM rebate systems operate, emphasizing the lack of transparency. He states that the rebate is collected as part of the full list price paid by the employee at the pharmacy, which is then remitted to the PBM. The PBM then manages this money, taking a cut of the rebate before distributing the rest to the employer.

He warns that accepting these “point of sale rebates” can be misleading, as they are not true net prices. Actual net pricing, in Cuban’s view, is characterized by the absence of any rebates.

Anywhere rebates are used, your PBM has control of everything, from the value of the float on the rebates (you pay your bill weekly, they pay out the rebates to you quarterly or worse), to fees and GPO games.

Legal Ramifications and a Path Forward

The post also touches upon the potential legal consequences for CEOs who continue with these rebate-accepting models. Cuban suggests that ERISA attorneys are actively looking for cases to pursue, implying that companies could face litigation.

To counter these issues, Cuban advises businesses to adopt a strategy of buying medications at net prices, explicitly avoiding any arrangements involving rebates. He stresses that true net pricing ensures that rebates are not a factor, thereby removing the PBM’s leverage and potential for manipulation.

Cuban concludes with a stark reminder of the potential legal scrutiny, referencing deposition scenarios where CEOs might be questioned under oath about their knowledge of how rebate dollars are funded by their employees, particularly those with severe health conditions.

Now you know. When you sit in the inevitable deposition, and the ERISA attorney asks if you knew that rebate dollars were actually paid from your sick, cancer patient employees, directly to the company, remember you are under oath!

Cuban’s candid post serves as a call to action for business leaders to scrutinize their pharmacy benefit arrangements and prioritize transparent, net-price-based purchasing to protect both their company and their employees from the hidden costs associated with PBM rebates.