The Not So Good, the Bad and the Ugly
Most good stories need a villain. In today’s pharmacy benefit industry, PBM and health plan contracts have become a villain for many stakeholders. A lack of transparency, confusing contract language and more elaborate pricing games are contributors. When PBMs and health plans are competing for business, they recognize and adapt to the way their deals are evaluated in the marketplace. PBMs create pricing caveats so their financial proposals look greater, which also makes it easier for the PBM or health plan to hit its proposed pricing guarantees. These contractual maneuvers distort a contract’s true value and oftentimes don’t meet the expected financial results. When one PBM gets away with contract caveats, others will follow.
Here’s the good news: many of these contractual maneuvers and pricing caveats can be identified, can be better negotiated in favor of plan sponsors and can achieve better overall costs. So, what are the common contracting games advisors can expect to see? And what are some new or developing contracting caveats that we are seeing in the marketplace?
What’s it all mean?
There are many more of these contracting caveats, but these are some of the most common and they can make a real impact in financial projections and analyses. In our 20+ years’ experience working in the PBM space, we believe the opportunity to improve overall PBM value to employers is 85% contracting and 15% clinical management. If the pharmacy arrangement has underperformed expectations, there is a strong chance contracting caveats are a significant contributor. If utilization hasn’t shifted dramatically and if appropriate clinical programs are in place, the caveats in this article should be examined.
At Employers Health, we understand the frustration for advisors and plan sponsors to discover some of these contracting issues. However, purchasers need to stop rewarding bad contract behavior with renewals. Vendor changes can seem daunting, but employers are leaving money on the table when they let incumbents get away with subpar PBM contracts. We are hyper focused on negotiating contract value because we know how it can impact the long-term performance and cost to our coalition clients. Unlike some pundits in the market who preach about changing the entire PBM system but find little to no actionable solutions, Employers Health has developed a contracting strategy to better purchase PBM services today.
A PBM contract can be the villain, but it doesn’t have to be. That’s the story we’re writing at Employers Health.