The Importance of PBM Contract Review Post Implementation

One of the biggest responsibilities of health plans and self-insured employer groups is selecting a PBM partner.  When that selection is being made, health plans and large self-insured employers frequently undertake an RFP (request for proposal) process, narrow down the candidates, and then perform a diligent review of the finalists.  Once a PBM is chosen, the health plan or employer group reviews and negotiates contract terms to finalize an agreement.

Health plans or employer groups enter into PBM contracts that make several guarantees, specifically as it relates to rebates, PBM operational performance (guarantees), and reimbursement rates.  Although a diligent review should be performed before the agreement is signed, what steps are health plans and employer groups taking after the agreement is in place to ensure that the contract terms are being met?  When dealing with PBM contracts, it is imperative that guarantee language is clearly defined.  A regularly scheduled review of the data is critical to ensuring contract obligations and guarantees are being met or exceeded.

When rebates are being calculated, the contract should clearly specify which claims are eligible for rebates.  Will rebates be paid on specialty drugs, and if so, how is a specialty drug defined?  Does the site of dispensing (retail vs. mail) impact the rebate?  How does the contract define a brand vs. generic drug?  Are there different rebate guarantees for 30-day vs. 90-day retail prescriptions? These are only some of the questions that should be answered in the contract language, but having well-defined terms is half the battle.  Once the contract is in place, an ongoing assessment is critical to ensure the plan performance meets the expectations.  For one of our employer group clients, this means a quarterly review of claims data and a comparison of the data against the rebate guarantee information provided by the PBM.  By monitoring the data, we proactively identify any discrepancies, estimate rebate dollars based on historical trends, and better negotiate future PBM contract extensions.  Whether the assessment is performed in-house or outsourced to consultants may depend on the individual health plan or employer group.

When evaluating reimbursement rates and effective rate guarantees, health plans and employer groups need to ensure that brand and generic drug definitions are clear.  The contract language should also include verbiage around different reimbursement scenarios.  Contracts should list what reimbursement rates will apply to single-source generics and prescriptions dispensed with different DAW (dispense as written) codes, such as DAW 5, brand dispensed as a generic.  Using the defined definitions, claims data is used to audit and ensure that the claims are being reimbursed appropriately and rate guarantees are being met or exceeded.  A review of the data can also identify scenarios that are negatively affecting the health plan or employer group, including identifying specific drugs that are having a negative financial effect.  Although some situations may be allowed under the current contract, a review can pinpoint problematic areas for future contract renegotiation discussions.

Negotiating PBM contracts with well-defined terms is crucial.  Concise contract language makes it easier to conduct post-contract audits and ensure that the PBM is meeting or exceeding the contractual terms.  Health plans and employer groups should have programs to monitor rebate guarantees, proactively identify discrepancies, and bring them to their PBM’s attention for resolution.  These reviews also assess other factors and provide insight into the PBM operations, enabling the health plan or employer group to negotiate better terms in future agreements.  PHSI has extensive experience helping health plans and employer groups evaluate PBM contracts and analyze data.  Let us know if we can help!

Posted May 2019

 

2019 Spring Newsletter:

Biologic Naming Update