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.

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.

1. Do you have the expertise within your company to evaluate PBM contract language? 
2. Do you have the skillset to design a pharmacy benefit plan? Or do you need additional training in pharmacy benefits management? 
3. Do you have the expertise and resources to manage the plan design or do you need to build in the incentives for the PBM to manage your program? 
4. How do you want to be involved in the management of the plan after it is set up? 

In other words, hire consultants not because you lack the requisite knowledge to design or manage the pharmacy benefit plan in-house, but because you lack the time or human capital to go it alone. Plan sponsors might be surprised to learn that many so called advisers know little more than they do or worse have misaligned incentives. Who is watching the watcher?

Milliman’s analysis of the information led to three categories where for most of the change across the PBM industry: pharmacy management, patient access, and supply chain. This discussion highlights actions PBMs are taking across these segments and the potential effects on plan sponsors and members.

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Although the responses were meant to be pragmatic, a major factor that has not been addressed is whether or not these strategies will add cost for plan sponsors, increase drug trend, exhaust the supply of certain pharmaceutical products, or override the plan provisions that sponsors had intentionally built into their programs to manage cost and care.

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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.

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.

These full-disclosure models avoid the “bargain basement” administration fees of 10 cents to 1 dollar per claim, for example, that give non-fiduciary PBMs the green light to generate cash flows that are not readily apparent to the sponsor. Some of these PBMs are so brazen (or plan sponsors indifferent) that they are even offering $0 dispensing fees on top of $0 admin fees! The plan sponsor should be prepared for a greater upfront PBM administration fee, north of $4 per claim, in exchange for total disclosure of cash flows.

How much money is your PBM making? Click to Learn More.

The full-disclosure model PBM may not actively promote a specialty pharmacy or mail-order facility, because with no manipulation of AWP and a fair MAC for both the pharmacist and sponsor, the PBM has no economic advantage. The perception of many plan sponsors is that “AWP minus discount” and the “minimum rebate guarantee” are the two key components in evaluating the PBM proposal.

From my experience, the plan sponsor should take the time to investigate the cash flows to the PBM. It is a variable rarely considered in the evaluation of PBM proposals yet has a profound impact on net costs. The time invested in PBM selection can return significant cost savings on future pharmacy benefit costs.

Given the competition in the PBM industry and the potential for undisclosed cash flows, I believe that plan sponsors can use the information in this week’s tip to their advantage in selecting and monitoring their PBM’s performance.