Tag Archives: PBM contracting

Vetting PBM contract provisions may lower pharmacy plan costs

Prescription drug plan sponsors must consistently evaluate and update their pharmacy benefit manager (PBM) contracts to control costs. In their article “Medicare Part D PBM contracting strategy,” Milliman actuaries Michael Polakowski, Nicholas Johnson, and Todd Wanta highlight numerous contract provisions that plan sponsors should examine and renegotiate to reduce pharmacy expenses.

Here’s an excerpt:

As contracting has become more complex, the following contract provisions are becoming more common as plan sponsors look to reduce their pharmacy expenses.

Price protection. In the current environment of high-cost trends for brand-name drugs, price protection can offer more inflation protection than discount guarantees. Any price increases above a predefined threshold are paid back to the PBM by the manufacturer and considered rebates by the Centers for Medicare and Medicaid Services (CMS). Plan sponsors should carefully consider how price protection can affect Medicare bids and end-of-year settlements.
Membership. More favorable dispensing fees, discounts, and/or rebates may be achieved for plan sponsors with higher membership counts. Improved contracting levels are specified directly in the PBM contract.
Discount/rebate guarantees. Discount and rebate guarantees may be presented in many different forms, e.g., rebates per brand-name script or on a per member per month (PMPM) basis, or discounts off AWP or the maximum allowable cost (MAC) list. Rebate guarantees may exclude certain drugs. At a minimum, plan sponsors should ensure the targets are clearly understood and auditable. Plan sponsors should be wary of proprietary definitions when industry definitions are available for reference. Plan sponsors should also ensure that reimbursement mechanisms are in place if targets are not achieved.
Rebate maximization. Because of the structure of the Part D benefit, rebates can be a more effective way to reduce Medicare bids than discounts. Over the last few years (and with the increasing cost of specialty drugs), plan sponsors have increasingly negotiated with PBMs to maximize rebates rather than discounts. The financial incentives for this approach are discussed by Milliman consultants Adam Barnhart and Jason Gomberg in a recent article for the AIDS Institute, “Financial Incentives in Medicare Part D.”1
Multi-year agreements. Some PBMs have been willing to provide discount or rebate improvements over time if plan sponsors commit to multi-year contracts. Plan sponsors should be sure to verify that the improvements are contractually guaranteed and meet or beat market-wide improvements. Even multi-year discounts should have market check provisions to allow plan sponsors the ability to receive better terms when the market changes.

Assessing PBM contracts with a basic ABC strategy

Plan sponsors can garner greater value from their pharmacy benefit manager (PBM) by routinely assessing their contractual terms and the PBM’s performance. The ABCs—auditing, benchmarking, and competitive bidding—of PBM contract assessment are key to delivering competitive pharmacy benefits on a cost-effective basis. In this article, Milliman’s Andrea Sheldon and Michelle Angeloni describe each of the three functions encompassing an ABC pharmacy benefit strategy.

Effective PBM contracting

We have blogged before about possible increased transparency facing pharmacy benefit managers (PBMs), and about how changes in pharmaceutical average wholesale price will affect PBM contracts. Now a new article by Brian Anderson and Bob Cosway in Health Watch looks at some of the intricacies of effective PBM contracting from a plan sponsor’s perspective. What should employers and others that pay for healthcare look for in these contracts? What’s the best way to keep up with new drugs coming onto the market? How should pricing be set and kept current?