Tuesday, August 10, 2021

Tip of the Week: The health plan sponsor hiring a PBM always has the final say on contract terms

Many purchasers of PBM services or their advisers select the PBM vendor who puts the "lowest price" on the table. Lowest price involves several variables including admin fees, rebate guarantees, AWP discounts and most important contract language. The problem is plan sponsors are putting a premium on the "numbers" and largely discounting the contract language. 

The Pharmaceutical Care Management Association (PCMA) is an American national trade association representing pharmacy benefit managers. Greg Lopes, an Associate Vice President of the Pharmaceutical Care Management Association, said "The health plan sponsor hiring a PBM always has the final say on contract terms." Seasoned executives or brokers can be seduced into placing more emphasis on the spreadsheet instead of the contract language. 

For example, price quotes are simply an estimate of what the plan sponsor would have spent had the historical utilization matched that of the proposing PBM (a lot in this sentence). Furthermore, the future actual cost is unknown. As a result, the plan sponsor’s PBM contract is the most important tool to address the actual level of spend - not cost projections.

Following up on a newspaper investigation, The Ohio Department of Medicaid commissioned an analysis of its 2017 drug reimbursement data and found that two PBMs billed the state almost a quarter billion dollars more for generic drugs than it paid the pharmacies that dispensed them. Ohio's Medicaid Director, Maureen Corcoran, sad this in response to a question posed by a reporter, "Have we saved the state money? That wasn’t the point. The point was transparency and so that we could continue to work on” necessary changes “in an educated way.”

I'm often asked, "Tyrone, tell me again why the proposal with the lowest cost isn't necessarily the lowest cost?" The simple answer is the contract language sets the foundation for all of the financials - not the other way around. It is through continuous PBM education you become a more sophisticated purchaser of pharmacy benefits which inevitably leads to radical transparency in your PBM relationship(s).

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