How do drug rebates generally function?

Drug rebates primarily function as financial arrangements between Pharmacy Benefit Managers (PBMs) and drug manufacturers. These agreements involve manufacturers providing a portion of the drug's price back to the PBM in the form of a rebate after the drug is sold. The purpose of these rebates is often to incentivize the PBM to include the manufacturer’s drug on their formulary or to promote its use among patients.

By working with PBMs, manufacturers can ensure their drugs are more competitively priced in the marketplace, potentially leading to increased sales. The rebates can ultimately lower the net cost of medications for insurers and, by extension, for consumers as well. This mechanism highlights the complex interplay between drug pricing, insurance plans, and patient access to medications.

The other options do not accurately describe the core functionality of drug rebates. Direct payments to patients typically refer to financial assistance programs rather than rebates. Discounted prices for pharmacies may be related but do not encapsulate the nature of rebates as agreements tied directly to PBMs and manufacturers. Insurance subsidies for high-cost drugs might involve different funding mechanisms and are separate from the rebate structure.