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PBM / Carrier Contract Terms That Increase Plan Sponsor Costs

Misunderstood or poor contract language is often a major contributor in increases to plan sponsor pharmacy plan cost.

Here are a few examples:

Price Guarantee Exclusions: PBM/Carrier contracts regularly add more new drug types to their list of drugs “excluded” from price guarantees.  One major exclusion in contracts are New-to-Market drugs.  These started out to impact only new high-cost Specialty drugs.  Now we are seeing this language expanded to include Specialty and Non-Specialty drugs and both brand and generic drugs. This allows the PBM/Carrier to charge whatever they want.  Some contracts contain a “default” discount that stays in effect anywhere from 6 months to 3 years.   We see specialty drugs dispensed from a retail pharmacy excluded from pricing guarantees.  Again, this allows a PBM/Carrier to charge whatever price they want.  No Price Control! Due to these exclusions, we are seeing the percentage of claims we must remove from the audit increase and plan sponsors are not benefiting from available more aggressive discounts.

Brand/Generic Definitions:  Contracts now are varied in their definition of how to identify a drug as a brand or generic.  Contracts are more often very vague allowing the PBM/Carrier to dodge and gut contract pricing terms and guarantees.

PBM/Carrier Integrated Contracts: We are now beginning to see contract language in medical contracts where the medical and pharmacy pricing guarantees are aggregated. If a plan over performs on the medical side, this over performance can be used to offset any shortfall in pharmacy pricing performance.  Or vice versa. Since audits on the medical side are less frequent than on the pharmacy side, this new language appears to be taking advantage of this to minimize or stop the payment of recovery dollars for pharmacy guarantee shortfalls.

Rebates Included In Pricing Guarantees:  Another contract area to be aware of is language that allows the pricing and rebate guarantees to be summed or aggregated. This is never favorable to a plan sponsor.  Rebates are continuing to increase and by aggregating the performance with the pricing performance, it allows the PBM/Carrier to perform very poorly in discounts and still not pay out any recovery dollars.    

Audit Document Deliverables:  To mitigate accountability, PBM/Carriers may attempt to deny plan auditors with access to the deliverables needed to fully audit pricing and rebate guarantees.  Examples include the:

· term “proprietary” which is used as a hurdle,

· plan is within a book of business type such as a coalition contract,

· PBM/Carrier contract terms prohibit its release,

· presence of a third-party distributor of the PBM’s programs prohibits its release,

· pricing and rebate guarantees may be by the total book of business versus by individual plan sponsor.

The presence of any of these examples may inhibit or stop an individual plan sponsor’s ability to audit at all.   The point is that contract language is critical to how a plan may perform and how effective a plan sponsor may be in their attempt to monitor a perceived pharmacy plan’s contract guarantees which govern pricing and plan administration.  Once this horse is out of the barn, it’s difficult to get it back in.  Make sure contract language is clear, concise,and that each section says what is intended. The best way to assure this is to have someone with an auditing background to review each provision.  

For questions or assistance, you can email Ginger Campbell at ginger@cobaltrx.comor call me at 225-927-1941.  For more information about CobaltRx, go to www.cobaltrx.com.