A plan’s drug spend is dictated by the terms, definitions and pricing provided in your contract. Every cost containment measure evolves from the contract, thus it’s the most important document and component of your plan. The most dangerous four words in a PBM’s lexicon are “It’s standard industry practice.” These “standard” practices can create one-sided contractual arrangements through the language selected that is designed to provide the PBM with maximum flexibility related to pricing interpretation, guarantees and performance measures, many times at the expense of the plan sponsor.
One of the most demanding elements in the contract review process related to pricing is comparing a Traditional offer with the so-called Transparent one. Traditional pricing is based on the PBM creating a pricing spread between the payments made to pharmaceutical manufacturers, wholesalers and pharmacies and the invoiced bill paid by the plan sponsor. Additionally, the PBM will usually retain some portion of any manufacturers rebates or incentives.
Transparent offers, by comparison, can range from the PBM simply providing cost disclosure to having them commit to a full pass-through of all price savings, rebates and incentives from anywhere in the pharmaceutical supply chain. The PBM’s only compensation under the full pass-through arrangement is an administration fee, either per claim or presented as a per member per month (PMPM) charge.
We remain agnostic in our opinion regarding whether one approach is always better than the other. It’s a fact and circumstance situation. In our view, however, a PBM should be aligned with one model or the other, not both. It’s incongruent for the PBM to claim that they will offer either one. In some cases, the PBM will actually tell the client that it doesn’t matter to the PBM which contract is selected, since they will price the offers so they can make the same profit margin under either scenario. At WBC, we do believe that the PBM has an obligation to make full disclosure regarding their business practices in order for the client to make and informed assessment.