Analyze & Change Your PBM Contract

Your Plan’s PBM contract is the single, most important document your Plan will execute.

Why? Because your PBM contract controls your Plan’s prescription coverage costs, as well as the services your Plan will receive.

Unfortunately, it’s virtually certain your current contract is poorly written, stuffed with loopholes and without the terms necessary to control costs. Accordingly, you need to put in place an entirely different contract.

Spend just a few minutes and compare the PBM contract terms our firm obtains for our clients, with the contract terms most likely in your contract. Here are the differences you’ll likely discover:



Our Clients’ Contract Terms Likely Terms In Your Contract
(& Virtually All Other Contracts Too)
Pass-Through Pricing Our clients’ contracts require pass-through pricing for every drug dispensed. Virtually all contracts contain pass-through pricing, but only for retail drugs. Thus, under most contracts PBMs retain unknown and unknowable “profit spreads” on all mail and specialty drugs.
Airtight Contract Definitions Our clients’ contracts contain more than 75 airtight contract definitions, including definitions for critical terms like “Brand Drug,” “Generic Drug” and “Specialty Drug”. As a result, our contracts prevent the PBM from shifting drugs from one category to another and thereby eviscerating contract guarantees. Virtually all contracts contain amorphous contract definitions and thus allow PBMs to mischaracterize and shift drugs from one category to another. The contract’s weak definitions – especially for “Brand Drug”, “Generic Drug” and “Specialty Drug” – allow PBMs to evade and eviscerate contract guarantees.
A Price “Control” Over Every Drug Dispensed Our clients’ contracts contain a price “control”  over every drug dispensed. Virtually all contracts provide guarantees over certain broad drug categories, but entirely ignore numerous drugs (like compound drugs, new-to-market drugs, specialty drugs dispensed from the retail pharmacy, etc.). As a result, PBMs can charge whatever they want for all such drugs.  
Retail & Mail  Guarantees   Our clients’ contracts contain airtight retail and mail average annual guarantees: Our contracts identify every drug that must be included in every guarantee, and include specific formulas for our clients and their auditors to verify satisfaction of every guarantee. Virtually all contracts contain guarantees that fail to specify the drugs that must be included in the guarantees. Alternatively, the contracts explicitly allow PBMs to exclude specified drugs. As a result, PBMs charge whatever they want for the excluded drugs. Virtually all contracts also omit formulas that identify how guarantee satisfaction will be measured.
Specialty Drug Guarantees Our clients’ contracts contain a “Minimum Discount Guarantee” for every Specialty Drug (meaning for 1,000+ drugs). Or, if a client prefers, a “Minimum Discount Guarantee” for 200+ Specialty Drugs that are the most used Specialty Drugs, and an Average Annual Guarantee for every other Specialty Drug, with all such drugs clearly identified. Regardless of the approach selected by our clients, every Specialty Drug has a “control” over its price. Most contracts either (i) have an Average Annual Guarantee for Specialty Drugs, but fail to define the term “Specialty Drug” so PBMs can easily omit drugs from the Guarantee; or (ii) contain a specific Guarantee for a short list of drugs, but leave 100s of drugs off the list, meaning the PBM can charge whatever it wants for all such drugs. Count how many Specialty Drugs your contract references – and deduct the number from 1,000+ existing Specialty Drugs – and you’ll realize why your Specialty Drug costs are soaring out of control.
New-to-Market Specialty Drugs Our clients’ contracts contain a “Default Discount Guarantee” that automatically applies to every new-to-market Specialty Drug that enters the market. Most contracts don’t even address the issue of new-to-market Specialty Drugs, meaning PBMs can charge whatever they want for every new, high-cost Specialty Drug that enters the market. Since the FDA approves about 20 to 40 Specialty Drugs every year, this is a large loophole.
Newly Available Generic Drug Guarantees Our clients’ contracts give our clients (or their experts) the right to monitor the prices of all Newly Available Generic Drugs, and negotiate “Maximum Price Guarantees” if the PBM fails to update pricing for those drugs as their prices plummet. Almost no contracts even address the issue of prices for Newly Available Generic Drugs, meaning months or even years after these drugs enter the market, Plans are not benefitting from available low costs.
Rebates Our clients’ contracts require the PBM to pass-through 100% of all “Financial Benefits” (not just rebates) from all third parties (not just drug manufacturers). Virtually all contracts only require that some percentage of “Rebates” from “drug manufacturers” are passed through, enabling PBMs to retain all manufacturer – or other third party – monies that PBMs label with a name other than “rebates”. No one knows how much PBMs are retaining, but available evidence reflects the amounts are very large.
Customization Rights Our clients’ contracts make clear that our clients can customize their Formularies, as well as all Prior Authorization, Step Therapy, Mandatory Generic and Quantity Limit Programs (with the assistance of experts, if need be). Despite PBMs’ obvious conflicts of interest and secret relationships with drug manufacturers, most contracts allow PBMs to make all Formulary decisions, as well as all decisions over Prior Authorization, Step Therapy, Mandatory Generic and Quantity Limit Programs. Relying on PBMs’ “standard” Formularies and Programs is like letting a fox guard the chicken coop.
“Net Cost” Information Our clients’ contracts enable our clients (or experts operating on our clients’ behalves) to obtain information on any drug’s “net cost” (meaning the cost of the drug, factoring in the passed-through rebates and other monies). With this information, our clients can customize and take charge of their Formularies and Programs, because our clients can determine the lowest-cost drugs in every therapeutic category. Almost universally, PBMs refuse to disclose any drug’s “net cost”. As a result, Plans can’t determine whether PBMs are favoring lower-cost drugs or instead favoring higher-cost drugs of manufacturers secretly paying PBMs to do so.
Audit Terms  Our clients’ contracts contain several pages of audit terms (i) detailing all documents and data the PBM must produce for audits; and (ii) setting forth precise formulas for verifying  satisfaction of every contract guarantee. Virtually all contracts (i) are silent, or say little, about the documents and data PBMs must produce; (ii) contain no details setting forth how guarantees will be measured; and (iii) contain language making clear that core information is “proprietary” (and thus won’t be accessible to any auditor).
Auditor Autonomy Our clients’ contracts make clear (i) our clients have an unfettered right to select their own auditors; and (ii) all audits will be conducted pursuant to a Confidentiality Agreement we attach to our contracts that ensures our clients have access to all necessary information. Virtually all contracts (i) allow PBMs to “mutually approve” auditors (meaning PBMs can veto the best of auditors); and (ii) allow PBMs to impose on their “accepted” auditors the PBMs’ own Confidentiality Agreements (which secretly limit what auditors can audit, and what auditors can disclose to their own clients, meaning you).
“Rights to Renegotiate” Pricing Terms & “Carve-Out Rights”  Our clients are not stuck with the same pricing terms for the life of their contracts. Instead, we give our clients  quarterly “rights to renegotiate” any Specialty Drug Guarantee, as well as “carve-out rights” to have an alternative specialty pharmacy dispense any Specialty Drug if the PBM fails to provide competitive pricing. Our contracts also provide annual “rights to renegotiate” all retail and mail and rebate guarantees, as well as Administrative Fees. Almost all contracts lock Plans into pricing terms and guarantees for the life of the contract (typically 3+ years), meaning Plans’ contract terms become obsolete and non-competitive long before their contracts expire.
Termination Rights Our clients’ contracts allow our clients to terminate their contracts “with or without cause, on 90 days notice”. These termination rights provide our clients with (i) flexibility to end coverage if disputes arise or service is poor; and (ii) leverage needed to exercise their “rights to renegotiate” pricing terms and guarantees. Most contracts lock Plans into 3+ year contract terms, other than if there is a “material breach” by the PBM of contract terms. However, PBMs can always dispute what constitutes a “material breach”, which eviscerates Plans’ ability to terminate their contracts.

Review your existing contract – or any newly drafted contract that a PBM or consulting firm is proposing – and you’ll almost certainly discover all the above-described weaknesses.

By eliminating all “loopholes” in your PBM contract – and incorporating our innovative terms into your contract – you’ll generate immediate savings. You’ll also position your Plan to control its prescription coverage costs on an ongoing basis in the future.

Contact Pharmacy Benefit Consultants, and we’ll help you analyze all the weaknesses of your existing PBM contract.