Where costs are concerned, I’m most concerned with whether or not rebates, discount rates and dispensing fees are competitive. It takes all of 30 minutes to compare these data points among 5 to 7 competing PBM vendors. Once I know pricing is competitive my attention turns to the contract.

You see PBMs don’t set prices they negotiate for better pricing which is different than setting prices. All bets are off if the PBM repackages directly via a mail-order pharmacy or indirectly through say a national chain of retail pharmacies. More about this later.

1. Begin procurement at least six months before the renewal date to put your company in the best position to drive a hard bargain. The first day of procurement starts when you’ve sent the RFI notification letter not when you’re just talking about renewal. Don’t wait too long before you begin procurement. Incumbent PBMs and other stakeholders love it when the process is rushed. The reasons should be obvious.

2. Presuming you have strong contract definitions, make sure rates and fees are in alignment with those definitions. The problem is 75% of buyers, from Fortune 500 companies to start-up, have bad language in their contracts. Just below is an example of bad contract language. Can you spot the problem areas? If you’re a decision-maker and you can’t, get some training or hire someone to help with managing your pharmacy benefit, seriously.

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3. Don’t allow the PBM to use an in-house definition for rebates, brand, generic or specialty drugs. The devil is in the details and non-fiduciary PBMs rely on wordplay to access hidden revenue streams.

4. During a RFP process, never select a winning vendor before contract terms have been agreed to by both parties. Believe it or not more than 50% of buyers make this mistake and it costs them radical transparency.

5. Always include market check language in your contract.

6. Don’t permit the PBM to put a ceiling on penalties for failing to meet performance guarantees. One exception to the ceiling rule is when the financial penalty exceeds the amount of fees paid. Put 50-100% of PBM fees at risk, up to the amount of fees paid, when guarantees aren’t met.

7. Your general counsel and CFO are likely unqualified to uncover hidden PBM cash flows even less so to measure the impact of clinical services. Get training or hire a PBM expert who has extensive experience in PBM contract review and a track record of success. This will save thousands of dollars and depending on the size of your company maybe even millions of dollars. Check out what Michael Critelli, now retired CEO of Pitney Bowes, wrote to me a couple years back.

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Weighting the importance of each (cost analysis vs. contract language) in terms of what an employer might pay, contract language is 90% and cost analysis is 10%. Non-fiduciary PBMs don’t set prices instead they manipulate prices which have been established by manufacturers, or wholesalers.

Worse yet, non-fiduciary PBMs negotiate fearlessly with manufacturers primarily to fill their own coffers. Saving clients money is an ancillary benefit and not the priority despite the rhetoric coming out of these shops. If you don’t believe me and think I’m hating just follow their earnings calls.

Think about it…the key then to bending the prescription drug cost trend is to reduce the amount of cash non-fiduciary PBMs keep for themselves which is based largely on your utilization. The key to uncovering these hidden cash flows is the contract language. A word to the wise, don’t put too much emphasis on spreadsheet analysis.

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.

Breakdown of the sources of health care wasteful pending

A critical component to eliminating wasteful Rx spending is a leadership-instilled culture of learning. A learning employer is stewarded by leadership committed to a culture of teamwork, collaboration and adaptability in support of continuous learning as a core aim. 

In a learning culture the employer takes ownership and doesn’t kick the can down the road. Complex PBM operations and processes are constantly refined through ongoing team training and skill building, systems analysis and information development, and creation of the feedback loops for continuous learning and system improvement. 

It seems the NDPC has fixed this problem have you?

The National Drug Purchasing Coalition (NDPC), an employer-led coalition, is announcing the Total Performance Management solution for its members: a transformative new way for employers to provide pharmacy benefits that guarantees pricing transparency, alignment on outcomes, and accountability for performance.

Express Scripts worked closely with the NDPC to develop the innovative solution. NDPC member companies include PepsiCo, Inc.; ExxonMobil; Chevron Corporation; Sodexo; Yum! Brands, Inc.; Solvay USA Inc., and others.

The Total Performance Management offering is a novel pharmacy benefit model providing employers with more transparency to the true costs of prescription medications, alignment with Express Scripts on clinical, service, and financial performance goals for the plan, and accountability from Express Scripts for delivering on those goals.

The new model has two areas of focus:

• Pay-for-performance for clinical and administrative plan management that improves patient and plan outcomes. Pay-for-performance means Express Scripts will take on more risk from clients, and be rewarded only when it delivers on agreed-to commitments.
• Clients pay what Express Scripts pays for prescription drugs plus administrative fees ensuring clients have the transparency they want. By adding clarity to costs, our clients will have a more direct line of sight to the true cost of drugs net of all manufacturer discounts, rebates and incentives.

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.

Phoenix-based Avella distributes specialty drugs, which typically are high-cost and treat complex conditions. UnitedHealth didn’t disclose terms of the deal, which will bring Avella under the umbrella of the United’s OptumRx pharmacy-benefits unit.

Source: Statista

The deal was OptumRx’s second acquisition in recent months. It also bought Renton, Wash.-based Genoa Healthcare, which operates pharmacies inside mental-health centers and provides telepsychiatry services.

Avella generated about $1.4 billion in revenue from prescription drugs last year, up 6 percent from a year earlier, according to Drug Channels Institute research. It had roughly 700 employees as of 2016, according to the Phoenix Business Journal.

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Source: CVS Q2 2018 Earnings Call Presentation

It is no secret that non-fiduciary pharmacy benefit managers will generally rely on the demands of clients, both current and prospective, for the level of transparency and disclosure it will provide. Express Scripts confirmed as much in the 60 minutes episode The Problem with Prescription Drug Prices by stating and I quote, “it is not contractually obligated to contain costs.” If you haven’t watched the 60 minutes episode you can read the transcript here.

Now CVS Health has admitted as much as well. In its Q2 2018 earnings call CVS Health writes, “We underwrite contracts to overall level of profitability and many levers available to pull, depending upon the preferences of the client.” In layman’s terms here is what that means…

Non-fiduciary PBMs are counting on two things from self-insured employers:

1. That you remain untrained in the business of managing pharmacy benefits. For the record, sitting through finalist presentations and reviewing responses to RFPs is not training. It’s just sitting through presentations and reviewing proposals nothing more.

2. The second is sinister and there is no other way to put it. Non-fiduciary PBMs want that your focus is on employee happiness so that you won’t dig deeper into the economics or consider alternatives.

Admittedly, at this level of the business everybody is smart, but not everybody is good at managing pharmacy benefits. Self-insured employers can have both – keep employees happy and pharmacy costs down – the solution starts with education. Period.