For Commercial and Market Access leaders, a decades-old rebate problem finally has a real solution, and the proof is in the numbers.
Every Commercial and Market Access leader in pharma knows the drill. Your team negotiates hard for preferred formulary placement. You secure the contract. You pay the rebates. And then weeks or months later after a resource-intensive audit, you discover the formulary terms weren’t honored. So, you begin the slow, painful process of clawing back what you’re owed, and generally ending up settling for a fraction of each dollar.
Welcome to pay-and-chase. A process so deeply embedded in pharmaceutical commercial operations that most organizations have stopped questioning whether it needs to exist at all.
It doesn’t. And that’s the point.
Why Pay-and-Chase Became the Default
To understand why this problem persists, it helps to understand why it was ever accepted in the first place.
Formulary validation is genuinely hard. Formularies change constantly — tier adjustments, step therapies, prior authorization requirements, quantity limits — and they don’t come with advance notice. The data needed to validate compliance doesn’t simply arrive; team members must actively go hunting for it across multiple PBMs, health plans, and pharmacy vendors, pulling from inconsistent formats and sources that don’t always cooperate. Some of that data never makes it out at all, locked behind password-protected portals and access-controlled systems that make systematic retrieval difficult or impossible. By the time your team has consolidated and standardized it, the invoice window has already closed.
So, manufacturers made a reasonable compromise: pay now, validate later, dispute what you can.
Analysis of manufacturer rebate portfolios has identified overpayment exposure averaging 4%–6% of total rebate spend. At enterprise scale, this figure routinely translates to tens of millions of dollars per company annually.
Note: % range to be confirmed from customer dataset. Source: Model N customer data; Model N Formulary Compliance Ebook, 2024
If a periodic audit uncovered overpayment, you’d spend months in settlement negotiations, often recovering only a fraction. According to data from Model N customers, that recovery rate typically lands between 10% and 20%.
A 10–20% recovery rate. On tens of millions of dollars in overpayments. That’s not a workflow problem. That’s a structural revenue leak.
The Assumption That Made It Worse
Underneath pay-and-chase lies a second assumption that compounds the damage: that comprehensive validation simply isn’t possible within a rebate payment cycle.
Most manufacturers have accepted coverage limits as a fact of life. You validate the highest-value plans. You sample across products. You do what you can with the staff and time available.
According to the Model N 2024 State of Revenue Report: 49% of teams cite extensive manual effort, 48% point to limited data access, and 47% lack the resources to validate all products across all plans.
Source: Model N 2024 State of Revenue Report (respondents could select multiple challenges)
When you’re manually reconciling prescription claims against contract terms across thousands of plans, “doing what you can” usually means covering around 50% of submission lines in any given cycle. The other half? Unvalidated. Paid. Gone.
This is where the real opportunity lives and where the industry is starting to shift.
What “Comprehensive” Actually Looks Like
The formulary compliance problem was never unsolvable. It was a data problem masquerading as a capacity problem.
The reason manufacturers couldn’t validate at scale wasn’t a lack of will — it was a lack of continuous, structured, machine-readable formulary data that could be systematically matched against contract terms at the prescription level. Manual processes and point-in-time audits don’t fail because people aren’t trying hard enough. They fail because the underlying data infrastructure wasn’t built to support ongoing, automated evaluation.
Build that infrastructure, and the math changes entirely.
A recent proof of concept automatically processed over 20,000 lines and 750,000+ units, evaluating 94.5% of lines compared to the manufacturer’s standard process of approximately 50%.
Source: Model N Formulary Compliance POC Readout, February 2026
The same engagement confirmed that 94% of the manufacturer’s functional requirements were met out of the box. Importantly, the findings surfaced a strategic question that applies to any manufacturer in this position: when automated evaluation identifies discrepancies of this magnitude, do you withhold payment pending resolution, or leverage the findings as evidence in future contract negotiations? The solution supports both approaches — a flexibility that matters as these capabilities move from pilot to standard practice.
These aren’t outliers. They’re what happens when you stop sampling and start evaluating everything.
The Shift Commercial Leaders Need to Make
For Commercial and Market Access leaders, this moment calls for a reframe. Formulary compliance has historically been treated as a finance and operations problem, something the rebate management team handles after the contract is signed. Now that the revenue implications are large enough and the technology is capable enough, it belongs in the strategic conversation.
A few questions worth putting on the table:
How much are you actually recovering? If post-payment recovery is your primary dispute mechanism and your recovery rate is in line with industry norms, you’re likely writing off tens of millions annually as a cost of doing business. That’s a choice, but it should be a conscious one.
What would full-cycle visibility change? Knowing your formulary compliance position before payment — rather than reconstructing it months later through audit — doesn’t just recover money. It gives your account management team real data to bring to the table in negotiations, as active leverage when contract terms are being set, not just enforcement after the fact.
What’s the alternative cost? The manual effort currently absorbed by formulary validation is significant. Staff time spent pulling formulary data, standardizing it, cross-referencing against contract terms, and chasing exceptions represents capacity that could be redirected toward higher-value commercial work.
Are your compliance controls keeping pace with your exposure? Formulary rebate programs operate in a heavily regulated environment. Organizations that can demonstrate systematic, evidence-based validation of every payment are in a materially stronger compliance position than those relying on periodic sampling and retroactive dispute. This is especially true given federal statutes including anti-kickback laws requiring that remuneration reflect legitimate, documented commercial arrangements.
The Regulatory Moment That Changes the Calculus
If internal ROI weren’t enough motivation, the external environment is now adding urgency that Commercial and Market Access leaders can’t ignore.
In February 2026, President Trump signed the Consolidated Appropriations Act (CAA), 2026, a landmark PBM reform legislation with direct implications for how manufacturers manage formulary contracts. The CAA introduces 100% rebate pass-through requirements, expanded audit rights for plan sponsors, and significantly enhanced transparency obligations that will force PBMs to disclose far more granular data about formulary placement decisions and rebate flows.
For manufacturers, this creates both an opportunity and a risk. Greater data visibility from PBMs means the raw material for formulary validation becomes more accessible than ever. But in an environment of heightened scrutiny, organizations still managing compliance manually are more exposed than ever.
The CAA doesn’t just change what PBMs need to disclose. It changes the standard of diligence that sophisticated counterparties will expect from manufacturers. If PBMs are now required to justify formulary placement decisions and pass through rebates with full transparency, manufacturers who can’t systematically validate what they’re paying and why will find themselves at a negotiating disadvantage and a compliance risk.
The window for treating formulary compliance as a back-office reconciliation problem is closing. What was once a best practice is becoming a baseline expectation.
From Exception to Standard
Pay-and-chase persisted for so long because the alternative — comprehensive, real-time formulary validation integrated directly into the rebate processing workflow — wasn’t operationally viable. The data wasn’t available. The tools didn’t exist. The coverage was too incomplete to rely on.
That’s no longer true. The technology exists, the regulatory environment is demanding it, and the proof of financial impact is documented.
Stop sampling. Stop chasing. Start validating everything proactively, systematically, and before the invoice is paid.
The technology to do it is here. The regulatory moment is now. The only question left is how long your organization is willing to wait.
Model N Formulary Compliance is a full-service automated data solution that executes ongoing formulary validations across products and plans throughout the year, integrated with Validata and Payer Management for end-to-end rebate processing.
