Gestalt theory suggests that the “whole is greater than the sum of its parts.” In other words, each individual working part of a team, a piece of equipment or even a contract is less significant than the results achieved when these parts are combined for one well-defined goal. Plan sponsors and their agents tend to take the opposite approach when evaluating PBM proposals. There are three key areas for improvement most plans sponsors can take advantage of in their RFP process: design, evaluation and compensation.
In most RFP processes conducted by brokers or HR generalist consultants, they simply send out the request, get the top three bids and ask you, the payor, to select the vendor with the lowest price points. The big problem here is that in most cases the price points for which your decision is based are often perceived and not real. In fact the prices are often trivial! As a payor your questions should be…
1. On whose behalf is my agent negotiating with other PBMs; mine or their own?
2. What are my actual costs?
3. Based upon my key performance factors, is this really the best deal?
Perhaps you have experienced this situation. You believe the deal with your broker consultant is great because you don’t compensate them directly. Further yet you believe the consultant will always work in your best interest. Is it feasible to believe that in a capitalistic society when someone else is footing the bill a sales-based organization is more loyal to the non-paying party? Maybe you believe so personally I don’t.
Early renewal is a logical alternative to conducting an arduous RFP process. It is very tempting to use an incumbent broker or consultant for the entire RFP process. However, it is very challenging, at best, to distinguish the difference between your existing consultant and the PBM due to what I consider conflicts of interests. Identify 8 -10 key performance factors and focus on these during your evaluation process. Don’t be impressed by 50 page RFPs. They often contain requests for information that are commonplace in the industry and simply waste everyone’s time. You’ll understand why in bit.
Your consultant will seek bids from vendors other than the one promoted in their coalition. However, they will only receive a “management fee” if you select their program. Many plan sponsors would be surprised to learn the actual costs of their PBM program. You are “footing the bill” regardless of what you’ve been told. Your consultant’s “management fee” is being factored back into the cost of your plan whether you know it or not.
Ultimately, you want the plan that will produce the lowest net cost, not the highest rebates. If a consultant offers you an unusually low fee or no fee to conduct your procurement, ask yourself whose interests they truly represent. I suggest you use an independent firm focused on getting the “right” arrangement for you from whichever PBM is the best fit.
