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Pharmacy Benefit Managers (PBMs) contract with employers, health plans, and other plan sponsors, incorporating language related to prescription drug definitions, rebate guarantees, pricing, and more. These contracts are often complex and opaque, containing industry jargon and hidden clauses. To ensure value and clarity, it is essential to know how to thoroughly review PBM contracts and pose the right questions.
Terms and Definitions
Comprehensive terms and definitions can help establish a framework for how services will be delivered, claims will be processed, and performance guarantees will be measured, etc. Without stakeholders realizing, contract language may be worded in a way to allow the manipulation of discount amounts and guarantees. For instance, we encounter situations where PBMs are able to reclassify prescription drugs from generic to brand (e.g., single-source generics), or exclude claims altogether (e.g., limited distribution drugs or biosimilars), impacting discount amounts. Specific terms, definitions, and performance guarantee language hold PBMs accountable for delivering agreed-upon services and savings.
Questions to Ask:
- Is there a strong and mutual understanding of the terms and definitions used in the contract?
- What claims are excluded from the guarantees? Where will those claims be categorized and at what guarantee?
Rebate Guarantees
Rebate definitions also play a critical role in guarantees. Ensure your PBM provides exact contractual language along with what medications will be excluded from rebate guarantees. Understand how and what rebate value will be allocated to the plan and at what percentage. If the contract states 100%, determine what the PBM considers in that 100%, as there are multiple categories of rebates.
Questions to Ask:
- What is the contract’s definition of a rebate?
- Are 100% of actual rebate dollars, manufacturer administration credits, and price protection inflation passed through to the plan? What other categories or claims are excluded from the guarantee?
- What percentage of total Rx spend is returned to the plan in rebate and/or administration credit?
Audits
Audits are essential to verify the accuracy of claims and rebate processing. Audits help identify any discrepancies or recoveries but may come at a cost. It is important to confirm if plans are allowed to conduct audits, if there are associated costs, and ensure that any recovered funds from audits are returned to the plan sponsor.
Questions to Ask:
- Does the PBM contract allow you to complete annual audits of
both claims and rebates? - If audits can be completed, does the PBM keep any of the recoveries found?
- Is a third-party entity hired to complete the audit? If so, how is the entity compensated?
Access to Data and Reporting
Regular reporting is crucial for plan sponsors to gain insights into their drug spend and ensure effective management of their pharmacy benefit plans. The option to have monthly, quarterly, and yearly reporting allows for comprehensive tracking of prescription drug utilization, costs, and trends over time.
Questions to Ask:
- Can you receive monthly, quarterly, and yearly reporting to better understand drug spend?
- How detailed is the reporting provided? Is the PBM providing claim-level detail?
- Is there a cost to access the plan’s reports?
Fees
PBMs may have multiple lines of revenue driving their profitability, making it important to question how PBMs are making their money. Be on the lookout for fees that could add up significantly over time. Additional revenue could include administrative fees, per-drug-claim fees, clinical program fees, and copay accumulator program fees, among others. PBMs may also keep a percentage of rebates, overperformance of a contract, and/or negotiated savings, or offer them for a fee. These expenses raise questions regarding the true value of the contract.
Questions to Ask:
- How is the PBM generating revenue?
- What are the fees for administrative tasks, rebates, per-drug-claims, clinical and/or other programs, etc.?
A Big Consideration: Is the PBM driving spend to the lowest net cost? If so, how?
Achieving the lowest net cost is one of the top priorities for plans. This involves assessing how competitive the PBM’s pricing is, their strategies for combatting specialty drug spend, and their overall formulary management strategies. Additionally, understanding the clinical programs they offer can provide insights into their approach to improving patient health outcomes while managing spend.
Questions to Ask:
- Are annual market checks allowed to keep pricing competitive?
- What is the PBM doing to help minimize specialty spend? Is specialty carve-out allowed?
- What formulary management or plan design strategies is the PBM providing to combat spend? Will they provide insight to prove lowest-net-cost value?
- What clinical programs are offered that benefit patients’ health and minimize plan and participant spend?
Becoming familiar with the complexities of PBM contracts and asking the right questions can uncover missing value and enhance the overall performance of a pharmacy benefit plan. The National CooperativeRx team is here to help navigate the PBM landscape with confidence. Whether you are seeking general industry information or are looking for more information about National CooperativeRx, you can trust us to help you make informed decisions.
Contact our team for general questions or educational opportunities here.
