What’s wrong with PBM ‘guarantees’, when the floor becomes the ‘ceiling’?

Health plans hire Pharmacy Benefit Managers (PBMs) based on the theory that PBMs will help save plans and participating employees money on covered pharmacy costs.  PBMs have grown rapidly over the years based on that theory.  The continual increase in healthcare pharmacy expenditures has caused many to question and doubt their efficacy in managing costs.  We started looking at the efficacy of PBMs at least 15 years ago.

Reading in detail a PBM contract which outlines the rules of operation is virtually impossible, even for most attorneys.  To begin with, a PBM contract often exceeds 100 pages and in place for more than one year.  The combination of an almost undecipherable contract language with the masterful use of negotiation techniques has put benefit plans at a terrible disadvantage.  Those conditions created a new layer within the health plan/PBM, the expert PBM consultant.  These are individuals who spent time working in various finance and operations positions within PBMs or who have pharmacist backgrounds who claim to understand the “ins and outs” of a PBM contract.  They work with larger plans, benefits brokers and consultants, and TPAs.

The approach of many consultants is similar.  Find a prospect, create and send out a Request for Proposal to 6-12 PBMs, summarize the results and present it to their customer on a spreadsheet, narrow the PBMs under consideration to some number like 3, and then negotiate a contract on the customer’s behalf with one of the 3 finalists.  The consultant is then paid a per script fee by the PBM that is negotiated into the contract.  We saw a situation recently where the consultant’s fee was $3.00 per script on a group of 1,000+ employees.

The PBM consultants really emphasize guaranteed discounts and rebates.  The problem with the discount is that it is taken off on a beginning price that is based on “AWP” or “average wholesale price”, a number without a firm standard.  There are multiple versions of AWP.  Further, the terms of the contract allow for more than a dozen ways to manipulate or even create that “standard” price number.  So while AWP sounds official, it is not.

The problem with “rebates” again lies in the contract’s definition of “rebate”.  A plan gets a “rebate” because it overpaid for the drug in the first place.  The formulary or Preferred Drugs lists often contain higher priced drugs instead of lower-priced alternatives in order to maximize rebates.  In addition, there are at least 8 different forms of rebates.  Which are included and which are not is not at all clear.

Finally, over the years we have had these consultants in place with “performance guarantees” on many contracts.  These covered 3 of the 5 major PBMs.  When underperformance was detected on these guaranteed contracts we saw the “guaranteed performance” ending up to be the ceiling on actual performance, not the floor.  If they overperform, it is not by much.

Here is an example.  A consultant’s report shows a guaranteed rebate per specialty pharmacy script of $1,200, as much as $14,400 per year. That sounds pretty good.  However, while that rebate might sound like a substantial percentage on a patient using specialty to control AIDS ($35-40,000), it begins to be low on a patient treating Chron’s disease or rheumatoid arthritis ($60-70,000 per year) and anemic on one of the patients using $100,000+ per year drug regimens.  It sounds great as a floor but not as a ceiling.

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