# Drug Rebate A **drug rebate** is a payment a manufacturer makes to a [[Pharmacy Benefit Managers]] (PBM) or plan — usually a percentage off the drug's [[List Price]] — in exchange for favorable [[Formulary]] placement. Rebates flow *backward* up the supply chain and are largely invisible to the patient at the counter. ## The Rebate Trap Because rebates are calculated off list price, they create a perverse incentive: a **higher** list price can yield a **bigger** rebate, so both manufacturer and PBM can profit from inflated stickers while the patient — whose cost-sharing is often pegged to list — pays more. A **rebate wall** is the related tactic of using large rebates on an incumbent drug to block formulary access for cheaper [[Biosimilar]] or competitor products. ## Why It Matters The rebate economy is the hidden engine of U.S. [[Drug Pricing]] and the focus of the February 2026 PBM reform law and the FTC's insulin-rebate case (which [[Cigna]]'s Express Scripts settled first, with [[CVS Health]] and [[UnitedHealth Group]] following). [[Big Pharma]] lobbied to reframe drug costs as a *rebate/PBM* problem rather than a *list-price* problem — a deflection that left manufacturer pricing untouched. See [[Drug Pricing]].