Tuesday, July 28, 2020

Tuesday Tip of the Week: Deadlines get deals done

It was about a month ago I was sitting behind the wheel of my automobile listening to sports talk radio. I know...there are much better options, such as NPR, but I needed an escape. My timing couldn't have been better, however. The segment I caught was about the Dallas Cowboys and their ongoing negotiations with starting quarterback Dak Prescott.  

Dak after being told he gets a one year deal
If you don't know the story and why would you if you're not a football or sports fan but here is the background. In the NFL, high-performing rookies are essentially locked into less than market value contracts for up to 5 years. A NFL team could extend the contract before expiration if it so chooses. In many cases, they do just that especially when the rookie has outperformed their contract and has stayed out of trouble.

Enter Dak and the Cowboys who opted to franchise tag Dak. A franchise tag is essentially a one-year deal with no long-term guarantees or committment from an NFL team. Does this sound familiar? NFL quarterbacks who are considered franchise type quarterbacks rarely get the franchise tag. Teams try and lock them up for the long-term. But when the team doesn't trust a player enough to lock them up long-term it uses the franchise tag. 

Many self-funded employers are opting to franchise tag their PBM instead of going into 2-3 year contracts. Why, because you don't trust them! Who wants to go through a bidding process every six months unless it's absolutely necessary? No one, thus the reason I wrote this blog post. One year deals give PBMs a lot of leverage. Have you ever wondered why it's like pulling teeth to get access to your own claims data but when the contract is up for renewal it seems to find its way to your inbox?

Jerry Jones, the owner of the Dallas Cowboys, said something I always knew but for some reason this time it really resonated with me. In reference to his negotiations with Dak Prescott and his agent, Jones said, "deadlines get deals done."  In our world, this is the same leverage PBMs use to get employers into deals which lead to contract opacity and significant overpayments. Pharmacy Benefit Managers are well aware employers must get ID cards into the mailboxes of their employees. 

In other words, non-fiduciary PBMs prefer short windows to get service agreements executed. Short windows lead to wasteful and duplicative spending especially on management fees. PBMs will generally provide transparency and disclosure to a level demanded by the competitive market and rely on the demands of clients in negotiating their contracts. Here are some useful tips:

1) Make the contract the centerpiece of any PBM selection process.
2) If the contract is 1A, the benefit design is 1B. Who has control you or the PBM?

The best proponent of radical transparency and lowest net Rx cost is informed and sophisticated purchasers of PBM services. I'm not talking about 1400 SAT or 4.0 GPA sophistication. I'm referring to a high level of sophistication in the PBM arena. If it isn't your lane don't play in it find someone who does.

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