Reverse Your Rx Drug Trends

Prescription Drug Costs Are Like A Runaway Train. Annual Cost Increases In Recent Years Have Averaged 7% to 15%, and Experts Project Even Greater Increases May Occur In the Future.

Here Are A Few “Starter” Ideas For Reversing This Run-Away Trend.

Renegotiate Your PBM Contract: Most PBM/Client contracts are stuffed with loopholes that enable PBMs to generate “profit spreads” in numerous ways, rather than requiring PBMs to “pass through” all potential savings to clients. Thus, the AWP Definition in PBM/Client contracts enables PBMs (and retail pharmacies) to retain all “bulk purchase savings.” MAC Definitions allow PBMs to charge essentially whatever they want for generic drugs. And PBMs retain the majority of manufacturer payments and discounts through a host of boilerplate terms PBMs include in clients’ contracts.

Accordingly, the key to reversing your ever-increasing drug costs is to amend your current contract – or draft and execute an entirely new contract – and eliminate all “loopholes” that are driving up your costs.

Conduct A Sophisticated RFP (Request for Proposal): Most RFPs prove to be of little or no value. Purportedly sophisticated consulting firms “re-price” their client’s claims tapes to analyze the financial savings that might result from using each competing PBM’s purported pricing; However, the “winning” PBM almost never provides in an executed contract the pricing that the consulting firm analyzed. Similarly, competing PBMs make oral and written promises to win a consulting firm’s RFP, but the winning PBM’s promises are almost never memorialized into the client’s actual contract with the PBM.

Accordingly, you need to conduct a different type of RFP. Before the RFP begins, you need to draft an entirely different form of contract, and you need to “bid out” that contract at the beginning of your RFP, requiring each PBM contestant to accept your contract terms or be eliminated from your RFP. During the RFP, you need to use the leverage of your RFP to force each PBM contestant to provide better and better substantive and financial pricing terms. And before your RFP ends, you need to require each of your PBM contestants to execute their “best and final” contract offers, thus ensuring that you can select a Finalist and bind it to the terms it has proposed during the RFP simply by executing that PBM’s contract offer.

X-Ray Your PBM’s Drug Costs, and Your Employees’ Drug Use: Virtually all PBMs tout their generic dispensing rates, but fail to mention that they are retaining much of the savings available from generic drugs. To end PBMs’ practices, you need to “X-Ray” your claims data to quickly assess the pricing that your PBM is providing. You then need to determine how much you could save if you replaced your existing, weak pricing, with available pricing in the marketplace.

Replace All “Spread Pricing” Contract Terms with “Pass-Through Pricing” Contract Terms: Virtually all existing PBM/client contracts are based on “spread pricing.” The PBM pays for each retail/mail/and specialty drug that will be dispensed at one price, but invoices its client based on a different, typically far higher, price for the same drug, and therefore makes a “profit spread” on each drug dispensed. Even those contracts that are purportedly “pass-through contracts” are usually only “pass-through” contracts for retail pharmacy drugs, meaning the contracts still contain “spread pricing” for every mail or specialty drug dispensed.

If you draft entirely different contract language, completely eliminate all “spread pricing” terms, and replace those terms with “pass-through pricing” for every drug dispensed, you will definitely decrease your drug coverage costs.

Eliminate All “MAC” Pricing Terms: To ensure that you obtain “pass-through pricing” for every drug dispensed, you also must eliminate all “MAC pricing” terms in your PBM contract. That’s because the definition for “MAC” in every PBM contract states that the PBM can invent any “MAC” or “maximum allowable cost” it wants for any drug it wants, and change its MAC pricing whenever it wants.

Clearly, if a PBM/client contract is based on “pass-through pricing” for every drug dispensed, PBMs must invoice the client based on the PBM’s actual acquisition costs, not on invented MAC pricing that typically bear no relationship to actual acquisition costs.

Require A “Pass-Through” Of All Manufacturer Payments and Discounts: Federal and state litigation – as well as numerous lawsuits filed on behalf of individual companies – have alleged that many PBMs have wrongfully manipulated their contracts with manufacturers to deprive PBM clients of savings. PBMs do so by playing (what our firm calls) the “PBM Labeling Game.” Here’s how the “Game” works:

In contracts with clients, PBMs agree to pass-through any manufacturer payment that is labeled a “rebate.” However, in contracts with manufacturers, PBMs invent numerous labels in addition to “rebates” (such as discounts, administrative fees, prompt payment fees, health management fees, data sales fees, etc.), and PBMs arrange to have most manufacturer monies characterized with those labels rather than the “rebate” label. As a result, most of the financial benefits that manufacturers (and other third parties) provide  to PBMs are never passed through to PBMs’ clients.

To ensure that all savings from manufacturer payments are passed through in the future, you must create an entirely different form of PBM/client contract that obligates your PBM to  (a) pass-through all third party financial benefits – not just rebates – from all third parties – not just drug manufacturers; and (b) requires your PBM to provide full disclosure of all contracts with all manufacturers and other third parties to enable you to verify that all financial benefits are being passed through.


Contact Pharmacy Benefit Consultants to Implement All Of The Above Cost-Saving Strategies And Learn About Still More.