Rebates rattle, but unlikely to break the pharmaceutical supply chain; report

During the third quarter, pharmaceutical pricing dynamics remained under scrutiny. Specifically, regulators have highlighted the elimination of rebates as a way to protect consumers since patients' out-of-pocket expenses are influenced by the list, rather than net, price of each therapy.

Despite this potential change, the elimination of rebates appears manageable for players within the pharmaceutical supply chain, even for the pharmacy benefit managers that are shouldering most of the blame for rebating by regulators, notes the latest report from Morningstar Credit Rating

Also, with the consolidation planned in the PBM sector, the direct influence of rebates on profits looks likely to continue falling for PBMs, given their diversifying revenue streams. For example, CVS/Aetna and Cigna/Express Scripts plan to merge by the end of 2018. While increasing leverage to fund these mergers creates the potential for rating downgrades at the combining entities, we think the convergence of the managed care and PBM sectors could create powerful entities that help bend the healthcare cost curve in the longer term.