The most important opportunity for the misuse of PBM in plan sponsors is probably related to manufacturers` reduction relationships. The key lies in the text of the treaty. A “complete pass” of rebates does not necessarily mean that all the revenue that PBMs receive from the manufacturer are passed on to plan sponsors. As explained here and above, PBMs have entered into contractual terms that would prevent plan sponsors from discovering the actual amount of manufacturer rebates purchased and retained by PBMs. Plan sponsors should have a fully transparent relationship with PBMs, but such a relationship can only be established through a carefully crafted contract. The contract should list all kinds of revenue and have an agreement for both parties on the amount of rebates – always try to negotiate a fixed dollar rebate and not allow PBMs to pay a discount per formula script – which are passed on to plan sponsors and are kept by PBMs. It is important that plan sponsors ask PBMs to draw up a list of subcontractors or gene aggregators who want to use PBMs for management. and their underlying agreements. Plan sponsors should have the last authority to award PBM contracts on the discount management function.
Another important element of the sponsorship plan contract with PBMs is pricing differences. Most PMBs adopt a traditional pricing approach, known as spread pricing or differential pricing, which means that PBM negotiates to aggressively pay drug reimbursement rates to pharmacies on the network, and in return, charges PBM customers, the sponsors of the plan, at higher contractual rates. PBM benefits from the gap between what the plans pay pbm and what PBM in turn pays the pharmacy. To take control of the spread pricing system, plan sponsors must require PBMs to determine and use either the lowest price source for each drug or the price source, which represents on average the lowest average wholesale prices (“AWP”). PBMs use two sets of “Max Allowable Cost” (“MAC”) for generic drugs. A MAC price list is paid at the pharmacy and another MAC price list for the same generics is billed to the plan sponsor. The PBM benefits from the margin between these two price lists. Plan sponsors should ask PBMs to use a full MAC list and also require transparency in pricing.
The contract with Pharmacy Benefit Managers (“PBMs”) is a daunting task that plan sponsors should not delegate and entrust to brokers or consultants. Some performance brokers place their personal interests above their clients and get, unknown, sponsors plan, significant financial incentives from PBMs. Plan sponsors have the ultimate responsibility to verify the terms of the PBM contract and to ensure that there are no vague contractual terms that plan sponsors would hamper PBM`s performance monitoring capability. PBMs use bulk terms to create hidden revenue streams. Frier Levitt has identified several pitfalls in PBM contracts, some of which are listed below. Plan sponsors should review pbm to implement cost control strategies and optimize services to beneficiaries. However, many PBM contracts contain a contractual language that severely limits the full review rights of plan sponsors. PbM also contains certain conditions that plan sponsors must set before conducting a PBM audit.