While it may seem early to be thinking about 2023, summer is primetime for issuing pharmacy benefit manager RFPs. In a
But these contracts are anything but simple, and what you see may not be what you get. There are multiple layers and even hidden languages to sift through. That's right, some PBMs have different meanings for words as seemingly straightforward as "generic" or "rebate."
PBM contracts can, and should, be customized to ensure your employer clients are receiving the best value out of their PBM. During the RFP process it is not unusual for a questionnaire to contain more than 150 questions that the PBM must complete in order to accurately evaluate the offer being proposed. While daunting, employer groups often uncover savings of 20% or more when going through this process. Here are key questions to guide the search for the optimal PBM.
1. Is this a transparent or traditional PBM pricing arrangement?
With a traditional pricing arrangement, the PBM earns revenue through retaining "spread" on either the cost of claims (discount spread) and/or the rebates received (rebate spread) in lieu of charging the employer group an admin fee.
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With a transparent pricing arrangement, the only source of revenue that the PBM receives is typically through the admin fees billed to the employer group, along with any additional ancillary or program fees incurred. This means that the amount the employer group is charged by the PBM for claims will be the same as what the PBM pays the pharmacy. In addition, the employer group also will receive the full value of any rebates earned on claims.
While these two pricing arrangements have their pros and cons, it is important that both types are evaluated during the decision-making process. It is also important to note that while "transparent" pricing arrangements may seem straightforward, there are just as many complexities within this arrangement as in "traditional" arrangements. That is why each contract should be thoroughly reviewed by the employer group or broker/consultant, irrespective of the type of pricing arrangement.
2. What are the discount and rebate guarantees being offered?
Ask about the discount and rebate guarantees that are being offered, since they will have a major impact on the total plan spend. True savings are driven by strong contractual guarantees, along with effective clinical management. Success comes from customizing solutions to meet each client's unique needs. Guarantees are not automatically included; they must be requested. And be sure to read and understand the fine print and ask questions. Not all of those numbers may be truly guaranteed.
Rebates are a hot topic right now and should not be overlooked. The most important, and seemingly most obvious, aspect of rebates is they need to be passed down to the employer groups. There's no reason not to receive all that is expected, especially since rebates can offset up to 30% of an employer group's total spend if negotiated correctly. Some administrative fees may be in place, but the vast majority should be passed down.
3. What cost-containment programs are available through the PBM?
Cost containment is an area that is often overlooked, but should receive a greater focus. In particular, pay attention to the amount being spent on specialty drugs that could be a significant portion of overall costs.
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It is not uncommon for specialty utilization to account for more than half of an employer group's spend, and that's only from a handful of claims. Find ways to contain those costs through, for example, a copay assistance or utilization management program. Disruption would be minimal and savings could be significant.
To avoid unexpected costs, ask if the PBM allows the use of third-party cost containment vendors that could help save money. Even though in-house programs can be helpful in some situations, a third-party program might work better.
4. How does the PBM define key financial terms?
PBM contracts are complex by design, so make sure your client understands how specific financial terms are being defined. Terms like "brand", "generic," "specialty" and "rebate" may seem straightforward, but every PBM has a different way of defining these terms – sometimes to their
How a drug is defined leads directly to how it's priced, or if there's a rebate paid on it. Make sure the definitions are clearly outlined and that there is no room for interpretation. You want to avoid misunderstandings that can have a major impact on the group spend and contract value.
5. What will account management support look like?
If your client has questions about the pharmacy benefit or a member is having issues with filling a script, what does the PBM's support structure look like? How many different employer groups does one account executive manage? There are instances where, for some PBMs, this number is in the hundreds. What do you think the response time is for one person handling 100 employer groups?
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But it's more than just responsiveness. What is the quality going to be in the management of your client's drug spend? These account executives are on the front line. And they're vastly outnumbered. If you want a specialist who responds quickly and knows the account, your client might want to accept higher rates for better customer service. Check for performance guarantees here, too. Is the PBM guaranteeing that they are available at certain hours or will respond in a certain amount of time? This shows confidence in their level of service.
There's no denying that PBM contracts are complicated. Don't let that deter you from landing a deal that suits your employer groups and their employees. The more you learn and the deeper you dig into the process, the more likely you will be able to reap savings on their behalf.
