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PBM Contracts 101

Business person reviewing contract with magnifying glass

Pharmacy benefit managers (PBMs) work behind the scenes to fulfill employer groups’ prescription drug needs. First, PBMs negotiate agreements with drug manufacturers, wholesalers, and pharmacies to establish prescription drug pricing and access. PBMs then arrange contracts with employer groups, utilizing the set terms and prescription drug pricing the PBM negotiated with drug manufacturers, wholesalers, and pharmacies.

Reviewing PBM contracts can be tedious as they contain details about operational procedures and definitions, guarantees, exclusions, and fees. However, to ensure the contract aligns with the employer groups’ best interest, it is crucial to read and understand the contract in its entirety.

Red Flags Within PBM Contracts

In addition to identifying misaligned interests within some PBM contracts, we have provided everyday life comparisons to demonstrate how unreasonable these aspects can be.

Vague Definitions

Unclear terms and definitions can cause plans to miss out on discounts. Subtle differences in drug classifications can favor PBMs and make PBMs’ pricing or performance guarantees much easier to reach, at the disadvantage of plans.

Everyday Life Comparison: A company advertises a large discount. It prompts you to purchase a product, but in the terms and conditions, the large discount does not apply to all purchases. A lesser discount applies to your purchase. The offer misled you and did not clearly explain the terms and conditions.

Inaccessible Data/Auditability

Oversight holds PBMs accountable for their financial guarantees. Plans need access to data to be certain their PBM held up their side of the agreement.

Everyday Life Comparison: Your business wants to increase its advertising efforts by 10%. You contract a third-party vendor who promises to meet your measurable goals. When you ask for a progress report, they decline to share information. When the vendor states they completed the project, they do not provide you with evidence the 10% goal was met.

Lack of Rebate Pass-Through

PBMs negotiate rebates with drug manufacturers and decide how to allocate rebate returns. If a contract’s rebate terms do not pass through 100% of rebates to plans, the PBM is keeping a portion of the cost of the drug. How the PBM defines a rebate can also affect returns.

Everyday Life Comparison: Your family member creates an arrangement with a cell phone provider and advertises incentives for joining their family plan, despite a slight cost increase. You join the cell phone plan expecting to receive the incentives, but your family member who sparked the deal receives the benefits rather than you.

How to Maximize the Value of a PBM Contract

When PBM contracts are positioned in the best interest of employer groups, they maximize pharmacy benefit value for plans and patients. To capitalize on the value of a PBM contract, we recommend ensuring the following aspects are incorporated into the agreement.

Financial Clarity

PBMs may have multiple lines of revenue driving their profitability and it is important to know how they are generating their revenue i.e., spread-pricing, administrative fees, etc.

Strong Definitions

Precise terms and definitions will help ensure guarantees are understood and delivered. For example, establishing clear brand, generic, and specialty drug classifications will help evaluate discounts and rebate reconciliations.

Clear Rebate Guarantees

The ideal rebate guarantee will pass back 100% of the collected rebates to plans. Specifying the details of rebate guarantees is crucial as the PBM may exclude certain drugs or claims from their guarantee. Rebate value can also be put under various buckets to limit disbursements to payors.

Ability to Audit

Audit allowances are an important piece to have in place to ensure contract guarantees are being met. Some PBMs may charge for audits, so be certain to ask what an audit might cost to complete, if not clearly stated within the contract.

Frequent Reporting

Monthly, quarterly, and yearly reporting helps plan sponsors gain a better understanding of drug spend and plan performance. At the least, yearly reviews can help to be proactive in considering and planning for potential plan design recommendations.

Annual Market Checks

Annual market checks keep PBM contracts up to date and help maintain lowest net costs. Drug prices change regularly and contracts with PBMs must improve annually to keep up with these changes.

National CooperativeRx’s contract has clear-cut objectives and is tailored to benefit employer groups and their participants. We deliver on the aspects above and are committed to maximizing the value for plan sponsors.

For more information on how National CooperativeRx’s contract aligns with your plans’ best interest, please contact us here.

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