A rebate is a payment from a drug manufacturer, made after the fact, in exchange for favourable placement on a formulary. Rebates are large, they are common, and they are legal.
The question is not whether rebates exist. It is who ends up with them. In a traditional arrangement, some portion flows to the plan sponsor and some is retained by the PBM, and the split is frequently difficult to verify from the contract alone.
One hundred percent pass-through means exactly what it says: every dollar of rebate the plan’s utilisation generates goes to the plan. The PBM’s revenue comes from the administrative fee instead, which the sponsor agreed to in advance and can see on an invoice.
That structure also removes a conflict. When a PBM keeps a share of rebates, the highest-rebate drug and the lowest-net-cost drug are not always the same drug, and the incentive points the wrong way.