As pharmacy benefit costs continue to escalate, more plan sponsors need to continually review and evaluate the performance of their pharmacy benefit manager (“PBM”).  One way to reduce pharmacy benefit drug costs is to know the right questions to ask when performing that review.  Top5-WilkinsonBenefitConsultantsHere are WBC’s Top 5 questions to ask your PBM for service agreements in 2016:

#1 – Will the PBM use the same MAC list for “buying and billing” purposes on your account? Maximum Allowable Costs (“MAC”) lists are one of the primary tools used by PBMs to control a plan sponsor’s drug spend.  It is also one of the primary tools they use to create profits through pricing spreads for themselves. PBMs control the discounts applied to generic drugs by moving drugs on and off the MAC list.  A drug on the MAC list may receive an AWP-80% discount for example.  When removed from the MAC list, the same drug will receive a much lower discount, maybe AWP-40%. Some contracts say that non-MAC generics will receive the same discount as a brand, AWP-16%, as an example. Many PBMs will pay the pharmacy the lower cost for the prescription based on the higher discount. Here’s an example:  AWP of $100;  AWP -80% = $20 payment to the pharmacy. The PBM removes the drug from the MAC list used to invoice the plan sponsor so that the invoiced charge of AWP-40% or $60 is billed to the plan for the same drug transaction. The PBM keeps the $40 spread it created as profit. This practice is known as using a “buy and bill” MAC list. Confirm with your PBM that they will use the same MAC list for your plan that they use for billing the pharmacy and that your plan will pay the same price that  the pharmacy is charged.

#2 – Will the PBM use an industry-recognized definition for determining brand drugs and generics? Along with generics being pulled off the MAC list as mentioned above, the PBMs ability to re-characterize a prescription drug from a generic to a brand can cost a plan millions! Some PBMs want to use a proprietary process or algorithm for defining these drug classifications. A plan sponsor should require a third-party publishing source such as Medi-Span classification codes be used instead.

#3 – Is your consultant receiving commissions from your PBM?  Many “consultants” have separate compensation agreements with the PBMs they are reviewing on the plan sponsor’s behalf. Sometimes these arrangements are disclosed and others are not. WBC believes this practice represents an obvious conflict of interest, since PBMs who do not agree to pay these commissions are excluded from the bidding process.  The plan sponsor never knows whether the winning proposal is in fact, the best one for the plan, or the best one for the consultant! Require your consultant to disclose any compensation they are receiving by the PBMs being reviewed.  A signed affidavit attesting to their representation is a good safeguard.

# 4 –  Is all financial remuneration paid by pharmaceutical manufacturers as a result of utilization by a plan’s membership included in the definition of rebates? Many times a PBM will represent that 100% of rebates are to be “passed-through” to the plan. They either exclude by omission or intentionally use language that says that certain payments from the manufacturers will not be included. In effect, they say if it’s not characterized as a rebate, then it’s not a rebate. A plan sponsor who is expecting a true pass-through contract should make sure that all financial incentives, payments and remuneration generated by their membership’s drug utilization be included in the definition of a rebate.

#5 – How will you manage and control the costs of Specialty Drugs? Specialty drugs have exceeded the cost trend curve that most plans and PBMs had predicted. Most plans will see Specialty costs being 45-50% of drug spend by 2020. A PBM has to be able to articulate a management plan to address these costs. We have been shocked to see how many plan sponsors and their consultants still treat Specialty as an ugly step-child to the rest of the plan.  It’s often times hardly mentioned and excluded from the negotiation discussions regarding definitions, discounts and rebates. As a plan sponsor, you must make Specialty a primary agenda item during your procurement review or contract negotiations.

Stay tuned.  There will be lots more to come from WBC on managing drug costs trends for 2016 and beyond.