Two years ago, brand-drug manufacturers paid out $127 billion in rebates, and other discounts and fees.

Joe Paduda

That, dear reader, is a shipload of dollars, and shows just how distorted brand-drug pricing has become. Huge increases jack up list prices and, in many instances, consumers’ costs, while those fees flow to payers, pharmacy benefit managers and other entities in pharma distribution.

Most consumers’ costs are based on the total price of the drugs they buy, not the net price after rebates, etc. As a result, consumers may be paying an inflated price while their insurer gets the rebate dollars.

I’d note that in some benefit plans consumers do receive a share of the rebates in the form of discounted drugs or lower upfront costs. Two big PBMs indicate they give about 90% of rebate dollars to their clients. Who hopefully pass those dollars along to their members.

Evidently, rebate contractual terms can be opaque, confusing and subject to misinterpretation, a rather scary possibility given the billions at stake.

I recently spoke with the CEO of a company that’s deep into the rebate management process. Quantivus uses technology to help payers and pharma track all those clauses, heretofores and whereas-es in rebate contracts to be sure the right dollars are paid for the right drugs to the right entities.

Quantivus’ solution helps stakeholders standardize terms and definitions, allowing them to ensure that they are comparing apples to apples when considering rival drugs — or rival payers. It does other stuff as well, and the company is working on a related service that will tie the negotiated contract to operational systems, helping to standardize reporting of rebate financials for manufacturers and payers.

It’s interesting in a couple of geeky ways. Evidently these contracts are so complex and convoluted that they can be misinterpreted or misunderstood, potentially costing the pharma company or its customer millions. Which there are plenty of.

It’s also interesting in that CEO Lisa Bair and her team have figured out a software solution to a problem that seems to get more complicated and more financially important by the minute.

If I were an attorney focused on rebate contracts, I’d be just a bit concerned that I could be replaced by Bair’s technology.

Joe Paduda is co-owner of CompPharma, a consortium of pharmacy benefit managers. This column is republished with his permission from his Managed Care Matters blog.