PBM Service Fees: The One Topic Which Rarely Comes Up During Contract Negotiations

For 5 minutes, I contemplated the word I’d use in this post to describe my feelings about the lack of meaningful engagement self-funded employers, and their advisers, have when it comes to proactively managing pharmacy benefits.

Sure everyone complains about the lack of transparency, ambiguous contract languange, spread pricing and other opaque PBM practices, but what are you doing different today than you were ten years ago, really? The word I chose is fascinated.

I’m fascinated because it’s an opportunity to help solve a problem. Please, please, please if you’ve never considered the PBM service fee in how you procure pharmacy benefit management services watch the 5-minute video below.

How can so many smart and educated people never require a PBM to disclose its service fee? Let’s be clear the service fee is not the same as the admin fee nor is it the final plan pharmacy cost. Hidden in the final plan cost is the PBM service fee. Why aren’t these smart people pulling this number out? One possible answer is that decision-makers lack a meaningful level of engagement.

Too many purchasers (plan sponsors and their advisers) are simply looking for the PBM vendor who puts the lowest price on paper or makes their life less complicated. This leads to being mired in the status quo not exceptionalness. Best price involves several variables including but not limited to admin fees, rebate guarantees and AWP discounts. The problem is not knowing the truth or consequences behind those numbers.

Your cross-functional PBM selection committee could be comprised of the brightest minds in legal and finance, but if they’ve little or marginal knowledge around PBM revenue mechanisms they’ll be taken for a ride. Trust me on this one I see it on a daily basis.

Back to the point about engagement. How engaged are you around pharmacy benefits? I’ll assume if you’re involved at any level with the procurement or management of pharmacy benefits your response is, “I’m fully engaged” or something similar.

However, what if I posed the question a different way and instead asked, “what are the four drivers of pharmacy costs?” Are you still as confident in your level of engagement? More importantly, could you manage those drivers to maximum cost-effectiveness? My contention is that a fully engaged person can answer that question without hesitation.

The National Pharmaceutical Council (NPC) recently published a worksheet which enables employers to first gauge their approximate position on a segmentation grid of consulting quality and pharmacy benefit engagement, and then identify actions to improve the overall quality of consulting support received and/or organizational engagement.

I strongly encourage you to complete the NPC worksheet and based upon the questions posed in this post to be brutally honest with your level of engagement. Asking tough questions and taking action is how problems get solved. Don’t do The GM Nod

Reference Pricing: “Gross” Invoice Cost for Popular Generic and Brand Prescription Drugs (Volume 191)

This document is updated weekly, but why is it important?  Healthcare marketers are aggressively pursuing new revenue streams to augment lower reimbursements provided under PPACA. Prescription drugs, particularly specialty, are key drivers in the growth strategies of PBMs, TPAs and MCOs pursuant to health care reform. 

The costs shared here are what the pharmacy actually pays; not AWP, MAC or WAC. The bottom line; payers must have access to actual acquisition costs or AAC. Apply this knowledge to hold PBMs accountable and lower plan expenditures for stakeholders.


How to Determine if Your Company [or Client] is Overpaying

Step #1:  Obtain a price list for generic prescription drugs from your broker, TPA, ASO or PBM every month.


Step #2:  In addition, request an electronic copy of all your prescription transactions (claims) for the billing cycle which coincides with the date of your price list.

Step #3:  Compare approximately 10 to 20 prescription claims against the price list to confirm contract agreement.  It’s impractical to verify all claims, but 10 is a sample size large enough to extract some good assumptions.

Step #4:  Now take it one step further. Check what your organization has paid, for prescription drugs, against our acquisition costs then determine if a problem exists. When there is a 5% or more price differential (paid versus actual cost) we consider this a problem.

Multiple price differential discoveries means that your organization or client is likely overpaying. REPEAT these steps once per month.

— Tip —

Always include a semi-annual market check in your PBM contract language. Market checks provide each payer the ability, during the contract, to determine if better pricing is available in the marketplace compared to what the client is currently receiving.

When better pricing is discovered the contract language should stipulate the client be indemnified. Do not allow the PBM to limit the market check language to a similar size client, benefit design and/or drug utilization. In this case, the market check language is effectually meaningless.