Relationships, like fine wine, sometimes spoil when mishandled. This is true with family, friends and business partners. At WBC ( we know that Pharmacy Benefit Managers (“PBMs”) can be added to that list.  Many times, a plan sponsors’ relationship with their PBM sours as a result of negotiating agreements with incomplete or inaccurate information. PBM consulting that offers terms, conditions, and pricing that an  Rx plan sponsor thinks they have bargained for to reduce prescription drug costs can turn out to be quite a bit different in practice!

PBM operations have been one of the best kept secrets in managed care. As a result of litigation over the past few years, many otherwise little-known business practices have come to light.  Stories regarding multiple pricing lists, huge pricing spreads, underreported rebates and non-compliance with contracted discounts have become rampant.  WBC  helps our clients and blog subscribers become better informed as to the PBM business practices that will influence their ability to control prescription drug costs. Our clients know what to look for in a PBM contract and why incorporating contract validation and audit provisions are so important!  We also help them better manage their PBM relationships which will directly reduce their overall drug spend.

The question then becomes “who is managing whom?”  If plan sponsors are the object of PBMs desire, shouldn’t the sponsor be in a position to, if not dictate terms, at least know the rules of engagement?  Unfortunately, too many plan sponsors have been willing to accept the four most damaging words in the PBM lexicon: “It’s standard industry practice.”  By accepting these “standard” practices, plan sponsors have allowed their PBMs to profit, some would argue, unfairly, at the expense of the plan and their members.

The first decision that a plan sponsor should make is to select a PBM business model that is consistent with the sponsors’ own operating philosophy.  There are typically three choices: Traditional; Transparent; and Pass-Through. Traditional is the most elusive.  The PBM will quote a pricing framework, including discounts and dispensing fees, along with shared rebates. Under this choice, little is actually disclosed about cash flows that are generated through the account and the majority of contractual features are left open for the PBM to interpret. The second option, Transparent, is really more opaque than clear. The PBM will declare some level of “disclosure” and will share some of their former windfalls, but they are still not handing over the keys to the kingdom. They may still be bound to achieve their own financial forecasts that are generated based on the financial underwriting assumptions they make when pricing a client account , particularly those PBMs that are publicly traded and have to meet analysts quarterly earnings expectations. The third option, Pass-Through, means that 100% of all sources of revenue generated through the plan sponsors prescription drug purchases,  is passed along to the plan sponsor.

Each of these three choices carries its own advantages and drawbacks. WBC believes that it is the responsibility of the benefit consultant to make sure the plan sponsor is fully informed.  It’s interesting when a PBM will tell the plan sponsor that they will offer all three types of options.  They will also claim that it doesn’t matter to them which offer the client elects, because it’s the same financial outcome to the PBM, based on how they have structured their pricing and administrative fees. This outcome seems philosophically incongruent and demonstrates the financial manipulation at the disposal of the PBM.   In our view, a PBM should offer one over the others.

Visit us again as we cover the additional crucial components for managing your PBM relationship in order to reduce your pharmacy benefit costs.

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