Featured Health Business Daily Story, July 27, 2016

Plans Inking New PBM Deals Must Watch for Loose Contract Terms

Reprinted from DRUG BENEFIT NEWS, biweekly news and proven cost management strategies for health plans, PBMs, pharma companies and employers. Sign up for an $86 two-month trial subscription today.

By Lauren Flynn Kelly, Managing Editor
July 8, 2016Volume 17Issue 13

Whether it comes to selecting a new PBM or renewing with an existing vendor, ironing out the details of a PBM arrangement is a notoriously convoluted and opaque process that can easily give way to loopholes. But by keeping an eye on several key areas, such as loosely defined terms and hidden revenue streams, plans can ensure that their contracts more closely reflect what they sought during the bidding process, advised two PBM contracting experts during a recent AIS webinar.

The biggest challenge PBM clients face in the contracting process is a “lack of pull-through,” observed Josh Golden, area senior vice president, and Helen Sherman, Pharm.D., R.Ph., vice president, both of Solid Benefit Guidance, during the June 30 webinar, “12 PBM Contracting Pitfalls…And Ways to Avoid Them.” Plan sponsors work hard to negotiate a competitive arrangement during an exhaustive RFP process and secure the best price from a vendor, “but there’s a question of how much of that gets translated precisely into the contract document, and what we see is that there’s a big gap,” said Golden.

This gap could be due to a variety of factors, including administrative error, different teams working on the RFP vs. the contract, and a ticking clock. “There’s a good timeline and a project plan for the RFP, but the contracting process gets condensed,” pointed out Sherman.

Golden added that PBMs rely on a mix of revenue streams to support their margins and tend to adjust and tweak those streams based on clients or even a single client. “If your PBM is relying on a set of revenue streams that create a set of incentives for that PBM, and those don’t line up with what your objectives are as a plan sponsor, then you could have some challenges in working together to manage the benefit ongoing,” he advised.

Drug Benefit News

As a result, Golden and Sherman identified 12 critical areas where plans should attempt to work some advantageous language into their contracts. Among them:

  • Rebate guarantee loopholes and exceptions. A “full pass-through” of rebates doesn’t necessarily mean all of the revenue that the PBM is receiving from the manufacturer as a result of the client’s utilization is going to the payer, suggested the speakers. “In order to really get all the monies that are coming from pharma for a particular set of utilization for a client, it’s best to list out all the types of revenue and have an agreement upfront for both parties as to what’s going to go to the payer vs. what the PBM is going to retain,” advised Sherman. These include claims from payer-owned on-site pharmacies that PBMs might be excluding because of concerns that they’re going through the 340B Drug Discount program but aren’t validating, rebate administrative fees and revenue from new arrangements such as so-called inflation protection programs.

Many PBMs are now engaging in inflation protection discussions with pharmaceutical manufacturers, said Golden. But because the client contracts tend to be behind the PBMs’ supply chain contracts by anywhere from one to three years, client contracts may not at this time consider inflation protection, “so to the extent that a PBM is receiving those dollars from pharma, they may not have a commitment to pass that through in any shape or form if the client’s contract doesn’t specifically reference the full pass-through of inflation protection money,” he warned.

  • Price modification rights. While pricing would seemingly be set in stone in a contract, there are some circumstances where a PBM may have the right to unilaterally impose pricing changes. Areas such as changes in laws or regulations, changes in average wholesale price or other reference price or action by pharmaceutical companies that could warrant a valid price change tend to be broad, giving “a lot of latitude for the PBM to drive change,” said Sherman. As a result, she advised putting in parameters around these areas and “really defining when a PBM is due more money.” Likewise, Golden recommended that clients seek the right to have an independent third party evaluate such circumstances and ultimately negotiate the right to terminate the contract if they don’t find the pricing changes to be fair.

  • Market check provisions. Any long-term PBM agreement in the dynamic drug-purchasing landscape should include a good checkpoint review of pricing, no more frequently than once per year, advised Golden. And while PBMs have been generally very accepting of including market checks in order to keep clients happy and likely to renew, these provisions could have some nuances that aren’t necessarily advantageous to the client, he suggested. Clients should, for example, negotiate the right to do their own benchmarking, involve an independent third party and not have to demonstrate a certain minimum threshold of savings to show that a PBM is not offering market-competitive pricing.

  • Specialty drug nuances. “There are a lot of dynamics in the industry as to who defines what is specialty, what’s on the specialty list and what roles the client or payer has in that,” observed Sherman. She said she’s seen specialty lists with 100 drugs on them, for example, and lists containing only 25 products. She advised including some basic rules as decision parameters, such as referring to the handling and storage instructions in the package insert, as well as establishing a procedure as new products come out to determine what should go on the specialty drug list.

© 2016 by Atlantic Information Services, Inc. All Rights Reserved.

For a recording and accompanying materials from the June 30 webinar, visit https://aishealth.com/marketplace/c6p16_063016.

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