Understand Your PBM Contract

Is Your Company Confounded by PBM “Jargon” and PBM Boilerplate Contract Terms? Here are a few “basics” you should understand:

What is “Average Wholesale Price” or “AWP”, and How Are PBMs Manipulating This Term?

Average Wholesale Price or “AWP” isn’t the average price, isn’t the wholesale price, and isn’t a price on which any PBM client should rely. In fact, recent litigation makes clear that AWPs have been artificially inflated for years by national reporting services, wholesalers and PBMs. Unfortunately, when the litigation was settled and the court ordered national reporting services to “roll back” AWPs, PBMs simply undid the settlement’s benefit by “rolling up” AWPs to their previously inflated state. Moreover, most PBMs unilaterally amended their client contracts to inflate the AWPs of new drugs as well.

Any effort to renegotiate your contract – or enter into a new contract with a different PBM – should eliminate artificial AWPs by defining AWP to be actual AWP. Your new AWP definition should also specify a single reporting service, and thus preclude the PBM from cherry-picking AWPs from different reporting services. Your new AWP definition should ensure that your PBM will pass through all bulk purchasing discounts obtained. And your new AWP definition should include language that will protect you from further unilateral PBM contract changes, if and when AWP is phased out and replaced by a different pricing standard.


What is “Maximum Allowable Cost” or “MAC,” and How Are PBMs Manipulating This Concept?

Virtually all PBM/client contain a definition for “MAC” – or a term similar to “MAC” (like MRA) – and allow the PBM to invoice its client for generic drugs based on the PBM’s MAC (or MRA) List. Unfortunately, PBM’s MAC (or MRA) contract definitions enable PBMs to invent MAC prices for as many (or as few) generic drugs as PBMs want, and change their prices whenever they want. As a result, PBMs can charge essentially any price they want for any generic drug. And that is just what PBMs do.  

When new clients come to our firm, and we conduct an “X-Ray” of their invoiced prices, we typically find their incumbent PBMs are invoicing $80 to $110 per prescription for commonly used generic drugs (like omeprazole) that should cost approximately $25 per prescription.

To rectify this problem, clients should insist upon “pass-through pricing” for all drugs, including all retail and mail generic drugs. And clients should eliminate all MAC pricing terms and guarantees from their contracts.  Pharmacy Benefit Consultants has generated an entirely different pricing structure for generic drugs, which you can read about in articles located in our “Videos and Articles” section of our website.


What Are Specialty Drugs, and How Are You Being Over-Charged for Specialty Drugs?

Biotech and injectable drugs – also called “Specialty Drugs” – are among the most expensive drugs in the marketplace, averaging $1,170 p/month. Moreover, experts project that Specialty Drug prices will increase 20%-40% per year.

Most medical plans use “J-Codes” to process Specialty Drug claims, allowing charges that range from AWP to 2,000 times AWP. Accordingly, your company should carve-out Specialty Drug claims from your medical plan, and require as many Specialty Drugs as possible to be processed through your PBM, where Specialty Drugs can be invoiced based on NDC Codes.

However, you must also change your PBM contract to ensure you can control your Specialty Drug costs. Here are basic contract terms you must include:
* Create a Definition for “Specialty Drugs” by cross-referencing to a contract exhibit list that includes every specialty drug currently on the marketplace (about 850+ drugs)
* Include contract terms that allow you to amend your Specialty Drug list on at least a quarterly basis to add all new-to-market Specialty Drugs
* Require your PBM to satisfy a specified “minimum guaranteed discount” for EACH Specialty Drug on the exhibit list
* Require your Specialty Drug Pharmacy or PBM to meet quarterly to review new Specialty Drugs, and to revise Specialty Drug “minimum guaranteed discounts” to ensure that your Specialty Drug discounts are as strong as can be obtained in the marketplace
* Include a “default discount guarantee” for all new-to-market Specialty Drugs in your new contract


How PBMs Manipulate “Rebate” Terms To Increase Their Profits and Reduce Your Savings.

PBMs claim that their marketplace size creates leverage to demand that manufacturers decrease their costs by providing rebates for PBM clients. But PBMs – not their clients – retain most of the financial benefits that PBMs achieve when negotiating with third parties.  

Indeed, most PBMs pass through to their clients only a small portion of total manufacturer payments and discounts. Moreover, virtually all PBMs refuse to disclose information concerning the rebates and discounts PBMs are being paid. In fact, most PBMs claim such information is “proprietary” and point to contract terms that allow PBMs to keep all such information secret.

Accordingly, your contract should eliminate existing contract language and replace it with language that enables your company – not your PBM – to benefit from all manufacturer payments and discounts. Read our article on this subject in the Video and Articles section of our website, and you’ll learn how to do so.


Contact Pharmacy Benefit Consultants, and have us review your contract to help you understand all methods your PBM is currently using to drive up your costs. And then let us help you eliminate all such methods from your next contract. Typically, the total amount that our clients pay us for our services is saved by our clients in the first few days of their new contracts.