A Monthly Blog Series - #2 of 5
If you’re reading this blog, you’re most likely aware how cumbersome and intricate pharmacy benefit management (PBM) contracts can be. Negotiating these contracts properly takes a deep understanding of PBM business practices and definitions, industry-specific language, and pricing structures. In part two of this blog series, I’ll discuss what red flags to look for in your PBM contract and how to fix them. If you haven’t been following this series, you may want to review last month’s blog “Weathering The Rx Storm” first.
When I review PBM contracts for clients, I’m generally grading it on the level of control my clients have over their pharmacy benefits purchase. Many contracts I’ve viewed give all the control to the PBM over a 3 year contract term. Ultimately, you want the contract to to maximize your savings and hold the PBM accountable for their performance. Some things I look for: definitions, types of claims that are/are not included in contract guarantees, term and termination language, and any vital language that may be missing.
Make sure your PBM clearly defines all terms. “Generic” and “brand name” drugs are good examples of terms that might not be clearly defined in your contract. You may assume the definition of a generic drug would be easily and clearly stated, but often times it is not. Ask your PBM for more details about how they define and classify brand and generic drugs.
See if “brand” versus “generic” definitions affect how your PBM reports their pricing guarantees. For example, a PBM may have a ‘loose’ definition of how to classify a generic drug when dealing with guarantees, which allows them to claim both higher brand and generic discounts. This loose language allows the PBM to ‘pick’ which financial guarantee bucket the drug will go into, which will affect your guarantees. Oftentimes, “discounts” may be deceiving and not be the best way to determine how your PBM is performing. You’ll need to look deeper into your data to understand what you’re actually paying compared to industry benchmarks. Personally, I have moved away from evaluating PBM’s on AWP discounts and utilize other methods to look at their financial performance.
Language missing from a contract can be just as detrimental to your bottom line as included language. Understanding what should be included or excluded in contract language will help you to hold your PBM accountable for their performance. One piece of language that is often left out of a contract is tied to what types of claims are included/excluded from the discount guarantees. Some examples include usual and customary claims, zero balance claims and compound claims. If your PBM offered you a renewal with a better discount rate, they might be including or excluding claims to help them achieve what “appears” to be a better deal for you.
Confirm that there is language stating guarantees for each channel of the pharmacy benefit, such as retail, mail order and specialty pharmacy. It’s important to address these areas with your PBM before the contract is finalized to ensure that the PBM is reasonably accountable for each separate guarantee, and that they cannot use higher performance in one area to offset losses in another. For example, if the PBM over performs on retail brand drugs and falls short on retail generic, the PBM should not be able to use the overage in the brand claims to offset the losses on the generic claims.
5. Ensure there’s language allowing the option to carve out channels of the benefit. I also recommend including language that allows you to carve out mail, specialty pharmacy or rebates to save even more money.
Using the right neutral, third-party consultant with expertise in pharmacy benefits , can help to ensure your contract is set-up to maximize your savings. These liaisons (Crystal Clear Rx is one) are equipped to communicate directly with your PBM and “speak their language” to help you get a contract in your best interest (and give you fair options to get out of the contract when necessary). When choosing a consultant, I would also ask them if they take ‘ANY’ revenue from PBM’s on ‘ANY’ aspect of their business. A consultant that accepts money from a PBM may not always have your best interest at heart.
In the next blog, I’ll discuss how to create a Specialty Rx strategy. In the meantime, please feel free to reach out directly if you have any questions or need Rx benefits advice.