Pharmacy benefits procurement and oversight platforms promise to make a difficult job easier. They collect PBM proposals and compare pricing. They also model savings and produce reports that brokers can present to employers. The technology saves time but it can create a false sense of certainty.
A report may show that one PBM will save an employer millions of dollars. Yet the results often rely on different assumptions and contract definitions. They may also apply different financial standards. That is not an apples to apples comparison.
A Polished Report Does Not Guarantee a Fair Comparison
Every PBM has its own way of defining the financial terms in its proposal. One may classify brand drugs based on its own list. Another may use a third party database. A third may reserve the right to change classifications during the contract term.
Each proposal may include a retail brand guarantee. Yet those guarantees may not cover the same drugs. The same issue applies to rebates because PBMs can define eligible claims differently.
Contract definitions determine which claims count toward a guarantee. They also control exclusions and how performance is reconciled. If those definitions are not standardized then the platform may reward the PBM with the most favorable assumptions. The math can be correct while the conclusion is wrong.
A PBM Can Decline Key Requests and Still Win
I recently had a candid conversation with a former CFO of one of the three largest PBMs. We discussed how large PBMs respond to requests from brokers and consultants. The former CFO told me that the PBM could decline about 20% of the requests in an RFP and still win the business.
That statement has stayed with me. Employers assume the selected PBM earned the business by providing the strongest proposal. In practice the PBM may reject important protections and still finish first because its modeled savings look attractive.
A PBM might decline stronger audit rights or reporting requirements. It might reject clear pricing terms or data access provisions. Those exceptions may receive little attention if the financial model still ranks the PBM first.
Many scoring systems place too much weight on projected savings. They place too little weight on whether those savings are enforceable after implementation.
The Service Agreement Is Reviewed Too Late
On another occasion I participated in a webinar presented by one of the major pharmacy benefits procurement platforms. I asked when the PBM service agreement was incorporated into the evaluation.
The presenter said it would be reviewed after the field had been narrowed to the top three finalists. That answer revealed a serious flaw. The platform could eliminate bidders before reviewing the document that controls the arrangement.
The service agreement determines whether the pricing proposal is enforceable. It contains the definitions and exclusions that affect the employer’s actual cost. It also establishes audit rights and access to data.
A rebate guarantee means less if the PBM controls which claims qualify. An aggressive discount means less if the PBM can change drug classifications. The proposed economics cannot be separated from the contract language that governs them.
The Biggest Cost Drivers Receive Too Little Weight
The biggest failure of many platforms is their limited consideration of clinical program management. Their evaluations tend to focus on price, including discounts and rebates. Those measures matter but they do not show how well a PBM will manage the medications used by the plan.
Formulary and utilization management are two important examples. Formulary management determines which drugs are covered and how they are positioned against available alternatives. The benefit design determines what members pay. That cost sharing is often reflected through formulary tier placement.
Utilization management applies tools such as prior authorization and step therapy to influence when and how medications are used. Depending on the plan, formulary and utilization management decisions can influence as much as two thirds of pharmacy costs.
A PBM can offer aggressive pricing guarantees while doing little to manage either cost driver. The employer may receive a strong discount on a high cost drug that should not have been preferred or used in the first place. That is not effective clinical program management.
Generic Conversion Savings Rate measures the savings achieved when eligible brand drug use moves to lower cost generic alternatives. Poor performance should not be dismissed as the unavoidable result of physician prescribing. The PBM’s formulary and utilization management programs can influence whether those conversions occur.
The financial interests of PBM owned pharmacies may also affect the outcome. In certain CVS arrangements I have reviewed, its retail pharmacies receive a higher dispensing fee for a brand drug than for a generic drug. The basic work required to dispense the prescription does not change because the drug is branded. Yet the reimbursement can reward the pharmacy more for dispensing the higher cost product.
This matters because the PBM owns the pharmacy. A platform that compares only discounts and dispensing fees may miss the incentive created by that ownership. The Federal Trade Commission has also reported that the three largest PBMs reimbursed their affiliated pharmacies at higher rates than unaffiliated pharmacies for nearly every specialty generic drug it examined.
A proper evaluation should examine formulary design and generic conversion. It should also review prior authorization and step therapy programs. Without that analysis the platform measures drug prices but not how well the PBM manages cost.
Oversight Requires More Than a Dashboard
Oversight platforms can display claims trends and rebate payments. They can also report pricing performance and guarantee results. Those dashboards are useful only when the data is complete and the measurements match the agreement.
A dashboard may report that a PBM met its discount guarantee. That means little if claims were excluded incorrectly or drug classifications changed. It also means little if poor clinical management continues to drive unnecessary spending.
True oversight requires tracing performance back to claim level data and contract language. It also requires examining prescribing patterns and the financial incentives behind formulary and pharmacy decisions.
Employers Need a Fiduciary Procurement Standard
Pharmacy benefits procurement should apply one financial and contractual standard to every bidder. The people conducting the evaluation must also be prudent experts who understand PBM pricing and contracting.
At a minimum each PBM should be evaluated using:
- The same claims data and utilization period
- The same trend assumptions
- The same drug classifications
- Standardized contract definitions
- Consistent treatment of fees and rebates
- Service agreement terms from the beginning
- Evaluation of clinical program management including formulary and utilization management
- Meaningful scoring consequences for contract exceptions
- Clear separation of guaranteed savings from projected opportunities
- Independent review by a qualified pharmacy benefits expert
Expert review should test more than the calculations. It should determine whether pricing terms are enforceable and whether the results account for the PBM’s financial incentives. A platform can produce an answer. A prudent expert must determine whether the assumptions and contract terms can be trusted. That judgment is central to a fiduciary standard of care.
