3 steps for employers to evaluate their PBM contracts

(Editor’s note: This is the second of a two-part series. Catch up on Part 1 here.)

As PBMs continue their fight to preserve the opacity of the status quo, private employers cannot afford to rely on the Supreme Court or state legislatures alone to secure transparency and gain control of their benefit costs. Plan sponsors have more power than they may realize when evaluating a PBM, and it comes in the form of the contract and being firm at the negotiation table.

Step 1: The RFP process

The contracting process typically begins with the RFP, so here it is important to state your intent to retain a transparent PBM that is committed to serving your best interests at all times. In the RFP, make it clear that the bidder must agree to serve as a fiduciary. That might limit the pool of bidders, but there are PBMs that will make such a commitment. If you want a larger pool of bidders, state that any PBM that refuses to serve as a fiduciary must explain, in writing, why it believes serving as a fiduciary is not in your best interests.

Step 2: The PBM contract

This is where the rubber meets the road. Your PBM contract must be free of any ambiguities regarding the PBM’s obligation to act in your best interests at all times. If the winning bidder agreed to serve as your fiduciary, include a precise term that says exactly that and go one step further and include additional terms that make it clear that the PBM must act in your best interests.

Here are a few key contract terms that require a PBM to act in your best interests, even if they refuse to serve as a fiduciary to your plan and its participants:

• Brand/generic definitions: Prohibit the PBM from using any internal “proprietary” algorithm that determines whether a drug will be priced as a brand or generic drug. Here, you should include definitions that refer the Medi-Span MONY codes or the First Data Bank equivalent that can be verified during your PBM audit.
• MAC pricing: Prohibit the MAC Game by requiring the PBM to use the same MAC List to pay the pharmacy and to bill you for generic drugs. Alternatively, consider requiring the use of NADAC pricing. NADAC is a price list for generics published by CMS. t allows for fair pricing for pharmacies while providing you with an independent third-party pricing source that delivers competitive pricing while allowing you to verify the accuracy of the prices that the PBM charges you for generic drugs and to confirm that the PBM did not retain any pricing spreads.
• Rebates: Make it clear that: (1) rebates are your property and that the PBM shall claim no ownership interest in rebates (after all, it is your money that the PBM is using to purchase drugs and drive rebates); and (2) the PBM must pass through and not retain any rebates. In doing so, be sure to define the term “rebate” to include any and all renumeration that the PBM receives from drug manufacturers based on your plan’s utilization. Otherwise, a PBM might be tempted to call a specific revenue stream something other than a rebate so it can retain that money and still be in compliance with your contract.
• Formulary placement: Require the PBM to: (1) place drugs on your formulary based on efficacy, safety and the true net cost of the drugs; and (2) once drugs are on the formulary, perform utilization management (e.g., step edits, prior authorizations) as appropriate for improving clinical outcomes and not increasing rebate yield.
• Data ownership: To avoid the “hide the data” game, make it clear that: (1) you own the claims data (i.e., the data that is generated in adjudicating your claims and invoicing for your rebates); (2) the PBM must preserve that claims data in a readily accessible format, inclusive of all data elements needed to support your PBM audit; and (3) that the PBM must produce that data to you upon request.
• Member engagement: Require the PBM to have in place a mobile-based member engagement tool that provides to the member real-time information at the point of care regarding medication alternatives and the price they will be required to pay at the pharmacy counter based on your plan designs. Such a tool will drive member engagement and empower your members to make informed decisions regarding their health care and the related costs. And making informed decisions can drive down costs over time.
• Audit rights: Perhaps most importantly, include audit rights that at a minimum require the PBM to: (1) preserve and produce for audit your claims data and plan documentation (e.g., the benefit plan designs that you and the PBM signed off on during implementation and plan modifications); (2) preserve and produce an electronic version of each MAC List it used to pay the pharmacies and to bill you during the audit period; and (3) to preserve and produce for your inspection the PBM’s pharmacy network contracts (inclusive of retail, mail order, specialty) and drug manufacturer contracts that involve the payment of money to the PBM based on your plan’s utilization. And be sure to make it clear that the PBM cannot object to your choice of auditor, provided that the auditor is not a competitor of the PBM and agrees to keep all records confidential.

Step 3 The PBM audit

Do not assume that your PBM is firing on all cylinders and not making any mistakes. It is essential that you audit your PBM to confirm that the PBM has delivered the contracted pricing and has implemented your plan designs correctly. In doing so, be sure to retain an auditor that can perform a 100% claims re-adjudication audit, i.e., an audit the reprices every claim against contract pricing and your plans designs, inclusive of prior authorizations, excluded drugs, days supply limitations and refill-too-soon parameters. If you fail to audit plan designs, you could be paying a great price for a drug that should not have been dispensed.

Let the light shine

According to research commissioned by Prescryptive Health and undertaken by Cascade Insights in 2021, 65% of self-insured employers are dissatisfied with their PBM​. But it doesn’t have to be that way. As noted above, there are several steps an employer can take now to move away from the dark opaqueness of today and into the light of transparency and empowered plan participants. Why stay unhappy?

David A. McKay is general counsel at Prescryptive Health, Inc., a health care technology company delivering solutions that empower consumers. Prior to joining Prescryptive in 2020, Mr. McKay spent over 20 years representing self-funded plans in audits and litigation against the country’s largest PBMs.