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How drug warranties fit into the pharmaceutical puzzle: Healthcare coverage considerations

Drug warranties share financial risk with end payers, boost authorization and patient access, and complement rebate and stop loss strategies.

06/09/2026 · 6 minute read

Align financial risk, boost authorization, and complement rebates to expand patient access.

Pharmaceutical manufacturers, the end payers who purchase advanced therapies from manufacturers, intermediaries involved in rebate models, and patients all have differing priorities, yet they share a common goal: providing life-saving treatments for people who need them.

Drug warranties have emerged as powerful, yet sometimes misunderstood, solutions that serve the above parties in different ways, reshaping how:

  • Risks are shared between entities
  • Coverage and authorization are managed
  • Value is delivered across the healthcare ecosystem

Drug warranties can complement and strengthen existing coverage frameworks to create more resilient, value-driven, and patient-centered risk management.

Distinguishing drug warranties from other market access tools

To appreciate the role of drug warranties, it is worth reinforcing how they differ from other value-based arrangements (VBAs) and outcomes-based agreements (OBAs). Traditional VBAs and OBAs typically involve contracts between pharmaceutical manufacturers and intermediaries, such as pharmacy benefit managers (PBMs). These intermediaries negotiate rebates or discounts based on drug performance or utilization, but the financial benefits often remain opaque to the actual end payers — the health plans or employers who are ultimately responsible for the cost. Intermediaries’ contracts with manufacturers are typically confidential, and the rebates or performance payments they receive may not fully benefit the end payers, if at all.

Drug warranties, by contrast, offer transparency and financial recourse directly to end payers. They function as outcome agreements: If a therapy fails to meet specified clinical endpoints, the warranty triggers a payout to the payer, offsetting the cost of ineffective treatment. This direct relationship between manufacturer and end payer aligns incentives more closely with patient outcomes.

Despite their distinctions, these approaches are not mutually exclusive; pharmaceutical manufacturers can strategically deploy both rebate models and drug warranties to create a more comprehensive and flexible market access strategy. Rebates can help manage overall drug costs through negotiated discounts for intermediaries and their clients, while therapeutic warranties provide financial protection and assurance to end payers.

How drug warranties can be integrated with stop-loss coverage

Drug warranties can also be integrated with existing coverage options, such as stop-loss insurance. For example, when a health plan shares risk with an excess insurer, warranty payouts can be apportioned according to the risk-sharing agreement. As a further example, if a $1 million therapy’s risk is split 50-50 between the health plan and its stop-loss provider, a warranty payout could similarly be divided, ensuring that all parties with financial exposure benefit appropriately.  Stop-loss agreements typically have claim recovery covenants to govern situations in which monies are returned for a drug or service that has been paid for by the policy.  For instance, if a stop-loss policy paid a valid claim for a $2 million gene therapy and the policy holder, the health plan, received a discount payment after the fact through a rebate from an intermediary, the plan may have a contractual obligation to report and send that payment to the stop-loss policy issuer.

Used together, a drug warranty solution, stop-loss coverage, and a rebate model can complement each other by addressing different aspects of risk and cost management, ultimately aligning manufacturer incentives with those of intermediaries, end payers, and patients. 

Coverage vs. authorization for an advanced therapy

Another important piece of the puzzle involves distinguishing between the coverage and authorization of advanced therapies.

Coverage refers to the decision by an intermediary, such as a PBM, to include a drug on a formulary, making it available to patients under a health plan. Authorization, however, is the subsequent approval process by the end payer to pay for the therapy for a specific patient, often involving a high-stakes decision when costs can reach millions of dollars. This process can be particularly risky for a smaller payer.

While VBAs and OBAs between manufacturers and intermediaries are used to provide assurance of some aspect of a drug’s effectiveness, they do little to influence the authorization decision made by end payers. This is because end payers have very little if any knowledge of the existence and terms of these VBAs and OBAs, and if they did, they would likely find them to be underpowered because of their misalignment to intermediaries. 

Therapeutic warranties fill this gap by providing end payers with clear financial assurance that if the therapy does not work as intended, they will receive meaningful remuneration. Because end payers get the full benefit from warranties, they are then more likely to authorize a therapy. This assurance can facilitate authorization decisions, reduce payer hesitation, and accelerate patient access to innovative treatments.

The regulatory environment as a strategic advantage for manufacturers

The Centers for Medicare & Medicaid Services (CMS) have established guidelines that shape how therapeutic warranties can be structured and have issued an anti-kickback safe harbor. Notably, to maintain the safe harbor, warranties must be contracts directly between manufacturers and financially at risk end payers, not intermediaries who pass the cost on to their clients. This regulatory guardrail ensures that warranties serve their intended purpose: providing financial recourse to those who bear the actual financial risk.

For pharmaceutical manufacturers, warranties represent a strategic opportunity to differentiate their products by offering outcome guarantees that justify premium pricing. They also enable manufacturers to engage more effectively with payers, accelerating market access and adoption.  

Industry context: Reducing prices vs. Lowering costs

In today’s healthcare landscape, reducing drug prices has become a major focus, driven by regulatory bodies and widespread public demand. Therapeutic warranties are instead focused on reducing net healthcare costs through financial recourse to end payers based on predefined periods and clinical outcomes, rather than upfront price cuts.

When a $3 million gene therapy delivers on its promise to cure sickle cell disease, all parties benefit, especially the patient.  However, when that same treatment fails to achieve a sustained benefit, even if its cost is lowered through a price reduction to $2.7 million, the entire plan and all of its beneficiaries are impacted.  Not only did the $2.7 million therapy not work, but premiums for all members may also rise.  This is especially so if the standard of care for the patient in whom the gene therapy has failed is equally expensive.  Warranty payouts to health plans can be redeployed to pay for treatments for other beneficiaries and keep beneficiary premiums low.   

If your gene therapy for sickle cell disease is the only one that offers some financial recourse through a drug assurance program, your therapy is clearly more valuable to a health plan than one that does not, all else being equal.  

Enhancing pharmaceutical manufacturers’ risk approach

Amid many competing priorities in healthcare, drug warranties are not a silver bullet but a vital addition to a pharmaceutical manufacturer’s risk management toolkit that can benefit many. By directly addressing the authorization challenge, aligning incentives between manufacturers and end payers, and integrating with existing risk mitigation and transfer strategies, warranties can unlock broader access to transformative therapies while managing financial risk.

Pharmaceutical manufacturers should view warranties not as a replacement for traditional rebate models but as a complementary strategy that, when combined, addresses the full spectrum of market access challenges. End payers gain transparency and financial protection, intermediaries receive appropriate incentives, and manufacturers can justify premium pricing with credible outcome guarantees.

Designing and operationalizing warranty programs is complex, requiring expertise in regulatory compliance, financial modeling, patient tracking, and more. Marsh and Octaviant Financial are uniquely positioned to help organizations deploy warranties efficiently and compliantly, with a specialized warranty platform and support from concept to execution.

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To learn more about how a drug warranty program can help your organization unlock greater patient access, speak with a Life Sciences specialist.

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Eddie Albers

Eddie Albers

US Life Sciences Practice Leader, Marsh Risk

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