Pharmacy benefits now stand among the most tangled financial terrains in healthcare, and of all the levers shaping a plan’s performance, rebates are the ones that most often cloud the view. They sound helpful. They sound strategic. They sound like a financial cushion that protects employers from rising drug costs. But in practice, rebate guarantees can create misalignment, distort plan decisions, and conceal the real drivers of pharmacy spending. For many self funded employers, the structure of rebate arrangements deserves closer examination than it typically receives. Pharmacy benefits now stand among the most tangled financial terrain underlines in healthcare, and of all the levers shaping a plan’s performance, rebates are the ones that most often cloud the view. Rebates were originally created as a way for manufacturers to secure placement of their medications on PBM formularies. A drug with a higher rebate had a better chance of being favored over alternatives, even when the clinical profiles of the drugs were similar. Rebates were intended to offset costs, but the way they have been operationalized has slowly transformed them into a revenue mechanism for PBMs and an unreliable compass for employers trying to navigate the true cost of their pharmacy program. A rebate guarantee is essentially a promise. The PBM commits to delivering a certain dollar amount or a certain dollar value per claim back to the plan in the form of rebates. These guarantees are usually structured to offer predictability. On paper it looks simple. The employer knows they will receive a minimum amount of money. The PBM knows the target they must hit. The arrangement gives employers a sense of security that they will not be left empty handed in a year when high cost drugs strain the plan. But what is rarely discussed is how the PBM meets the guarantee and what trade offs occur in the background while that promise is being fulfilled.

Rebate guarantees are not accidental. They shape everything from formulary management to clinical decision pathways. When the PBM promises a guaranteed amount, it must engineer the drug mix to support that outcome. This is where the misalignment begins. A plan may be receiving high rebates, but it may also be paying for expensive medications that were chosen primarily because of the rebate value rather than the net cost, the true cost of a drug to the plan after all discounts, rebates, and other financial offsets are applied. The employer sees a large number on the rebate check and feels reassured, yet the real total cost of care continues to rise. It is like receiving a discount on a purchase you never needed to make. The employer celebrates savings that are not actually savings because theing price of the medication was artificially inflated from the start. This dynamic has reshaped prescribing behavior on a national scale. Drugs with higher rebates often end up as preferred therapies even when there are medically equivalent and less expensive alternatives available. The PBM benefits more from one choice than another. The manufacturer increases the list price to support the rebate. The employer pays a higher total cost. The member may experience unnecessary side effects or inconvenience because the decision was not based solely on clinical appropriateness. And the cycle continues because the rebate system rewards the behavior that created the problem in the first place. Over time employers have become more aware of this pattern. They look at their pharmacy spend and notice that it does not reflect the optimism they felt when they committed to a rebate guarantee. They begin to ask questions about net cost, therapeutic alternatives, and formulary logic. They question why certain medications are preferred when they do not align with clinical best practice. They notice that the cost of specialty medications continues to skyrocket despite receiving generous rebate dollars. They realize that the financial model does not benefit them in the way they were led to believe.

This is the heart of the misalignment. The PBM benefits when certain drugs are chosen. The manufacturer benefits when prices remain high. The employer benefits only on the surface. The deeper financial reality shows a pattern of incentives that rarely prioritize the plan or the member. Rebate guarantees may appear to offer protection, but the guarantee itself becomes the anchor that holds the employer in a cycle of unnecessary spending. One of the most significant issues is that guarantees shift focus away from net cost and toward rebate optimization. The rebate becomes the star of the show even when it should not be. Employers begin evaluating their PBM performance by the size of the rebate check instead of the actual cost per script or the total annual pharmacy spend. A plan can receive impressive rebate dollars while still dramatically overspending on medications that never belonged on the formulary in the first place. When rebates dominate the conversation, employers lose sight of therapeutic value, utilization appropriateness, and upstream categories that drive cost growth. Another problem occurs in the form of withheld rebates and retained balances. PBMs often negotiate rebates with manufacturers at levels much higher than what is disclosed or shared with employers. The guarantee becomes a ceiling rather than a floor. If the PBM receives more rebate dollars than the guaranteed amount, they keep the difference. The employer has no visibility into that reality because the guarantee becomes the limit of what they expect or request. This structure allows PBMs to keep substantial amounts of undisclosed revenue by setting the guarantee at a level that looks generous but does not reflect the full value of the manufacturer agreements. Employers often do not realize that the PBM is rarely at financial risk in these arrangements. The PBM controls the formulary, the utilization rules, and the access pathways. They can shift prescribing volume toward drugs that maximize rebate capture. They can suppress alternatives that reduce overall cost but offer lower rebates. They can structure pathways that guarantee the guarantee. The employer receives predictability at the expense of cost efficiency, while the PBM receives revenue stability at the expense of alignment.

As more employers become aware of these inconsistencies, they have started demanding better information. They want to know actual rebate values, not summarized numbers. They want clarity on what percentage of rebates the PBM retains. They want to understand how the formulary is chosen and whether the decisions reflect clinical nuance or financial incentive. They want full pass through models that eliminate hidden revenue channels. They want insight into how net cost can be lowered by prioritizing the right medication, not the most profitable one. But beyond visibility, employers are recognizing that rebate guarantees themselves may not be the advantage they once believed. In many cases, they can even be a liability because they prevent the plan from moving toward lower cost medications that naturally reduce rebate opportunities. If a plan elects a low cost therapy strategy, the guarantee becomes harder to meet. This forces the PBM to choose between fulfilling the guarantee or prioritizing the employer’s actual net cost. In most traditional PBM contracts, the guarantee wins. The plan pays for it. The member pays for it. The PBM does not. For self funded employers, the path forward requires a reframing of expectations. Instead of being impressed by high rebate numbers, employers should focus on the clinical and financial integrity of the plan. They should evaluate the PBM on net cost rather than on the size of the rebate check. They should insist on transparent reporting that shows drug level detail rather than aggregated categories. They should demand clarity on whether the recommended therapy is truly the best choice or simply the most profitable within the rebate ecosystem. The most effective strategy is to push for arrangements that tie PBM compensation to cost reduction rather than rebate maximization. A PBM should succeed when the employer succeeds. It should earn more when it reduces waste, not when it promotes high cost drugs. It should be rewarded for steering members to clinically effective and affordable options. It should demonstrate that its interests are aligned with the plan rather than positioned against it.

Employers can also benefit from exploring vendors that do not rely heavily on rebate models. Smaller PBMs and transparent PBMs often prioritize net cost over rebate volume. They design formularies that reduce waste instead of maximizing rebate flow. They provide clarity on every financial stream involved in the pharmacy benefit. They collaborate with consultants who understand how to examine contracts, decode pricing mechanisms, and identify misleading metrics that can distort employer decision making. They operate with less conflict because their business model does not depend on hidden revenue. The path toward better pharmacy management is not defined by the size of the rebate. It is defined by the quality of the decisions that lead to lower spend and better outcomes. Employers who shift their focus away from rebate guarantees begin to see their pharmacy benefit differently. They stop asking how large their rebate check will be and start asking whether the plan is using the right drugs at the right time for the right price. They start identifying misaligned incentives in contracts that once seemed standard. They begin measuring the impact of utilization management protocols, clinical programs, specialty oversight, and member navigation strategies. They discover that the most meaningful savings are often found not in the rebates themselves but in the decisions that prevent unnecessary spending from happening in the first place. The pharmacy benefit market will continue to evolve and rebates will likely remain part of the conversation. But employers are becoming more savvy. They are asking better questions. They are challenging legacy contracts. They are exploring modern models that emphasize transparency and alignment. They are recognizing that rebate guarantees can be helpful in certain situations but harmful when used as the primary measure of PBM performance. The future of pharmacy benefits for self funded employers rests on a simple idea. The PBM should be aligned with the plan. That alignment starts when employers insist on transparency, demand clarity, and prioritize net cost over rebate volume. It continues when they choose partners who understand the full financial picture and refuse to rely on the illusion of savings created by inflated drug lists and generous rebates that mask the true cost. It becomes sustainable when the employer recognizes that every pharmacy dollar tells a story and that story should reflect their goals, not the PBM’s revenue model.