AbbVie 2013 Annual Report Download - page 53

rebate. Using historical trends for that rebate, adjusted for current changes, AbbVie estimates the
amount of the rebate that will be paid, and records the liability as a reduction of gross sales when
AbbVie records its sale of the product. Settlement of the rebate generally occurs from two to eight
months after sale. AbbVie regularly analyzes the historical rebate trends and makes adjustments to
reserves for changes in trends and terms of rebate programs.
Rebate and chargeback accruals are recorded in the same period as the related sales, and are reflected
as a reduction of sales. Rebates and chargebacks in 2013, 2012 and 2011 totaled $4.9 billion,
$4.3 billion and $3.7 billion, respectively, or 30 percent, 28 percent and 25 percent, respectively, of the
gross sales subject to rebate. A one-percentage point increase in the percentage of rebates to related
gross sales would decrease net sales by $160 million in 2013. AbbVie considers a one-percentage point
increase to be a reasonably likely increase in the percentage of rebates to related gross sales. Other
allowances for cash discounts and returns charged against gross sales were $748 million, $667 million
and $617 million in 2013, 2012 and 2011, respectively.
Management analyzes the adequacy of ending rebate accrual balances each quarter. In the United
States, the most significant charges against gross sales are for Medicaid and Medicare rebates, managed
care rebates and wholesaler chargebacks. Medicaid rebates relate to the Federal Medicaid program,
which is administered by state agencies, whereby rebates are provided to participating state and local
government entities under various laws and regulations and in some cases supplemental rebates are
also provided to the states under contractual agreements. Medicare rebates are negotiated with
managed care organizations that manage prescription drug plans covering the Medicare Part D drug
benefit. Pharmacy benefit manager rebates arise from contractual agreements with private health care
plans that seek to reduce costs by negotiating discounts with pharmaceuticals manufacturers. Under
wholesaler chargeback programs, the wholesaler charges AbbVie back for the difference between the
price paid by the wholesaler to AbbVie and the price paid by the end customer to the wholesaler under
contractual discount agreements negotiated between AbbVie and the end customer. In order to
evaluate the adequacy of the ending accrual balances, for each type of rebate, management uses both
internal and external data to estimate the level of inventory in the distribution channel and the rebate
claims processing lag time for that rebate. External data sources used to estimate the inventory in the
distribution channel include inventory levels periodically reported by wholesalers. Management
estimates the processing lag time based on periodic sampling of claims data. To estimate the rebate
percentage or net price, systems and calculations are used to track sales by product and by customer or
payer and to estimate the contractual or statutory rebate or net price. AbbVie believes systems and
calculations are reliable.
49