Pharmacy Benefit Managers Contract Analysis with LHD

When an employer takes full advantage of the LHD pharmacy and PBM analysis service, one of the elements you’ll enjoy is our PBM contract analysis service. The contracts involved in pharmacy and prescription drug benefit plans are complex and well beyond the ability of most companies to analyze and compare in order to choose or negotiate the most beneficial contract possible. This is when the deep expertise and commitment of LHD to get results for clients can have huge positive impacts on controlling Rx spending while still ensuring each employee gets the prescription drugs and medications they need.

The Ever-Shifting Landscape of PMB Contracts

Like most aspects of health benefit plans, prescription drug benefits by way of pharmacy benefits managers (PBMs) contracts are a constantly evolving landscape that most employers simply can’t keep up with. The length and complexity of PBM contracts can be mind-boggling, which is why working with LHD makes such good business sense. We know exactly what to look for when vetting, analyzing, and comparing PBM contracts.

The value of this contract analysis service cannot be underestimated. LHD educates employers about what’s lurking in the ambiguous wording and complex caveats found in many PMB contracts and explain the real-world impacts they can have on your Rx spending. Our assistance in navigating these matters results in better contracts aligned with your benefits strategy and goals as well as more cost savings, all while meeting the needs of your pharmacy benefits plan participants.

Traditional vs. Pass-Through PBM Contracts

The traditional approach to PBM contracts was the dominant approach for years. More recently, however, a new approach called pass-through contracts has come into play. Some employers have heard of this, but simply don’t have the bandwidth to know whether this new style of PBM contract might be right for them. This hesitation is natural and understandable. After all, perhaps you’ve read about PBMs who seem to craft contracts that benefit themselves rather than having the best interests of plan sponsors and their members in mind.

LHD can help you navigate the differences between these different types of contracts, paying particular attention to a wide range of factors that have serious bottom-line impacts, including the following:

Contract Transparency

Many traditional PBM contracts have a lot hidden in them most plan sponsors wouldn’t even pick up on or know to look for. There can be hidden revenue streams for the PBM, complex caveats to leverage fee-for-service health care business models to their advantage, ambiguous language that makes it sound like everything is working in your favor when it’s not, and so on. Pass-through contracts have appeared in recent years with the ultimate goal of bringing greater transparency to PBM contracts and give employer plan sponsors better visibility into the management of their pharmacy benefit plan. Pass-through contracts will likely have much clearer language and when done well is focused on the best possible rebates and discounts as well as pursuing the lowest net cost to help reduce overall Rx spending.

Administrative Fees

One source of revenue many traditional contracts build in for PBMs are the administrative fees. If those are structured to be charged on a per-claim basis, there is no incentive for PBMs to perform due diligence on whether the prescription is appropriate, thereby increasing the possibility of adverse reactions, prescription medication abuse, and wasteful spending. A good pass-through contract will not make the volume of claims a revenue stream for administrative fees, which instead can be assessed on a per-member, per-month basis, separating them entirely from claim volume.

Average Wholesale Price (AWP) Discount Guarantee

The AWP figure that appears in many traditional contracts is merely an average and not what the employer sponsor will receive. The contract may say AWP minus 18% for particular drugs when the real discount is AWP minus 19%. Can you guess who keeps the difference in this arrangement? The PBM! This one tiny little detail can result in hundreds and even thousands of dollars going to the PBM that should be passed on to the employer plan sponsor. In a good pass-through contract, the specified discount should be a guaranteed minimum, and if the actual discount is negotiated by the PBM to be more, the full discount is passed on to the client.

Spread-Based Revenue

Yes, PBMs need to generate revenue to compensate them for the role the play in pharmacy benefits management on behalf of plan sponsors. But sometimes they go too far. Some charge employer sponsors more for each prescription than is reimbursed to pharmacies and pocket the difference. This serves to obscure employer visibility into how much the PBM is earning from the contract and makes auditing their drug spend all the more difficult. A good pass-through contract should never have a spread-based revenue in it because PBMs should not be profiting from every drug prescribed.

Maximum Allowable Cost (MAC) Pricing

Part of what a PBM does is prepare a list defining the maximum it’s willing to pay a pharmacy per unit of a generic drug. The problem that comes up with some traditional contracts is that the MAC list given to an employer plan sponsor is not the same MAC list given to the pharmacies. The way this plays out is that the MAC prices on the plan sponsor list are higher than what the PBM is going to pay on the MAC list given to pharmacies. Once again, this is a strategy used by some PBMS to add to its spread and pocket the difference, at the expense of the plan sponsor. A good pass-through contract, however, will show the exact same MAC list is in place for plan sponsors and pharmacies without any hidden spreads and sponsor markups.

Controlling Rx Spending Through Contract Analysis and Comparison

The five items mentioned above that illustrate some of the differences between traditional PBM contracts and good pass-through contracts are just the tip of the iceberg when it comes to what we look for during contract analysis and comparing different contracts. We just wanted to give a flavor of what we’re paying attention to when we do contract analysis for you. Employers can’t be expected to know all of this or spend precious time and resources on trying to vet PBM contracts on their own. Working with LHD puts our wealth of experience at your disposal, and we get great results on your behalf. We look forward to hearing from you through the Contact Us page of our website. You can also feel free to call us directly at 317.751.7049 to learn more about what LHD can accomplish for you.