Monthly Archives: April 2020

Tuesday Tip of the Week: One Year PBM Service Agreements are not a Fail-Safe

Image result for blocked artery
Clogged Artery

An alarming trend is taking shape in the service agreements between PBMs and plan sponsors. Ten years ago it was commonplace for pharmacy services agreements to have 3-5 year terms. That was at a time when prescription drug costs were an afterthought. Very few buyers of PBM services were concerned enough about the lack of transparency in PBM contracts to worry themselves about the terms. Who can blame them with pharmacy accounting for only 5% to 10% of total health care spend. The cost to large employers amounted to a rounding error.

Source:  https://www.ahip.org/health-care-dollar/

That was the past and oh how times have changed. Today, it is not uncommon for pharmacy to account for 35% or more of total healthcare spend. In fact, AHIP (America’s Health Insurance Plan’s) in a 2017 data brief disclosed for the first time ever that prescription drug costs consumed the largest proportion of dollars spent on health care premiums, with 22 cents out of every dollar going to medication costs.

How have many brokers and benefits consultants decided to attack a lack of transparency in PBM contracts? They are getting into one year deals. I have to admit if you are going to enter into a bad deal it may as well be a short one. A better approach is to enter into a radically transparent deal for 2-3 years working alongside the PBM to improve performance.

I’m well aware it’s easier said than done. It requires a trained-eye and skilled negotiation to win radical transparency for plan sponsors. The alternative though is one year deals and having to renegotiate the contract for the next year a couple of months post-implementation!

Short terms for leasing an office space or even an automobile works in the buyers favor. But the PBM industry is far more complicated. It doesn’t give you much time to negotiate a more transparent deal and so the poor process just repeats itself. For example, how often do you see terms for PBM services being negotiated after the PBM has been notified it is the winner? The PBM knows it is the winner, go-live is 45 days away yet you expect radical transparency and lower costs Y/Y. Get real.

The reward for short one-year deals is more opacity one year after the next with you scrambling to find a new vendor or getting a better deal. One year deals are not a fail-safe. They are a path to least resistance.

Reference Pricing: “Gross” Invoice Cost vs. AWP for Popular Generic and Brand Prescription Drugs (Volume 307)

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 more than a 5% price differential for brand drugs or 25% (paid versus actual cost) for generic drugs we consider this a potential problem thus further investigation is warranted.

Multiple price differential discoveries mean 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.