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Not Signing A PBM Contract Is Akin To Putting On A Seat Belt After The Car Wreck

Plan sponsors work hard to keep benefit costs down.  They engage consultants or brokers in the benefits field to achieve better outcomes.


The existence of a signed and executed PBM contract may be an early indicator that the plan sponsor has taken steps to give the plan its best opportunity to maintain its cost effectiveness.  The reason is the contract can then be used to measure the achieved performance against the contract guarantees.


In at least 50% of the audits we do, the client never signed the contract.   The question is why?  


The best time to mitigate risk is before there is a problem.  One example is driving.  People are encouraged to put on their seat belt before they start driving yet many still do not.  Once a wreck takes place, putting on a seat belt accomplishes nothing.  Once a PBM is selected and they produce their final contract for execution, the plan sponsor if they don't like certain provisions has little leverage and may choose to simply not sign the contract.  The result is very similar to putting on a seat belt after the wreck.


Many brokers and consultants focus on building spreadsheets that fixate on pricing and rebates.  They totally miss details such as contract language which can have a very large impact on plan performance.  This impact can often overshadow the benefit of an extra percent discount below AWP (Average Wholesale Price) or a higher rebate.  They want to do a good job for their client, and they often rely on what they perceive to be in the client’s best interest which is upfront pricing.  They can rush to get bid results back to their clients who may be pushing for a decision.  What is often lost in the shuffle is that PBM multiyear contracts, can impact the plan sponsor for many years.  Changing PBMs takes a lot of effort on the plan sponsors part, so getting the RFP out early and not rushing through the decision process is important.  Sending out last minute bids rarely result in a good long-term decision.


Our observation is that contracts are requested too late in the bid process.  Once the bidders are narrowed down to the final 2, it is important to request the final contract as this is when the plan sponsor has the most leverage.   The only way to get ahead of this issue is on the front end during the RFP (Request for Proposal) bid process.  A winning strategy is not ignoring or delaying negotiating the contract.  Plan sponsors will see better long-term results by taking more time during the RFP process and at each renewal to get the assistance of an attorney or pharmacy consultant experienced in negotiating PBM contracts.


Unsigned PBM contracts do not help the plan sponsor when it comes time for an audit.  Audits without an executed contract are certainly more challenging as the contract language is written by the PBM legal team and totally favor the PBM by limiting their liability to errors and shortfalls in pricing and rebate performance guarantees.


Over the last 10 years PBM contracts have changed from being short and straightforward to long and complex documents. Buried in all the pages is language which moves risk to the plan sponsor relieving the PBM from meaningful liability.   Also buried in the contracts are various limitations to when the negotiated discounts apply or do not apply.   This makes reviewing and negotiating contract terms a major detail.  


At CobaltRx, we are experienced in PBM contracts and language that saves plan dollars and builds a better partnership between our clients and the PBM.  


Is your contract signed?  Was it signed, but never thoroughly reviewed by an expert on PBM contracts?  Call us at 225-281-0291 or email us at ginger@cobaltrx.com.  To learn more, visit us on the web at www.cobaltrx.com.