Episode 5 – Claim Adjudication and Reconciliation: Key Concepts Plan Sponsors Should Know

Madison Connor (0:10)

Good afternoon, I’m Madison, this is Mike, and welcome to another episode of Benefits Bites, where we break down complex employee benefits topics into bite-sized updates.

Mike Stull (0:20)

Short, bite-sized updates.

Madison Connor (0:22)

What are we talking about today, Mike?

Mike Stull (0:24)

Yeah, I think with all the legislative and regulatory events going on and requirements hitting the marketplace, I thought it would be good to tackle a really exciting topic on what the difference is between claim adjudication and claim reconciliation.

Madison Connor (0:42)

Well, that sounds very technical, Mike. Is there an easy way for us to remember the difference between adjudication and reconciliation?

Mike Stull (0:49)

Well, I think it’s in the names. So, claim adjudication is what the price is at the time that a claim is actually filled and processed at the pharmacy. And claim reconciliation is you take that claim and understand if there is a guarantee that that claim and other claims that are similar to it are reconciled to.

So, think of generic drugs in terms of we reconcile generics to an overall guarantee.

Madison Connor (1:25)

So, can you walk us through an example of how this plays out in standard PBM pricing?

Mike Stull (1:31)

Yeah. So, I use generics as an example. We’ll just keep going with that.

But when we think about generic adjudication, what price do generic claims actually process at at the pharmacy counter? And it’s typically one of a few different pricing benchmarks. So, it could be the maximum allowable cost or MAC.

It could be the discounted cost. Or it could be the pharmacy’s usual and customary price, usually called the UNC price. So, from an adjudication perspective, it’s typically the lowest of those three benchmarks.

You hear that defined as or called lowest of logic. So, that’s claim adjudication. Then at the end of the year, typically it’s at the end of the year.

It could be a different time period, but typically it’s 12 months. The PBM will set an overall effective guarantee or an overall effective rate guarantee. And anytime you hear overall effective rate, you think average, you think reconciliation.

So, that particular generic claim, along with all generic claims, say, in the retail setting, dispensed at a 30-day supply, are reconciled towards that guaranteed discount. So, again, regardless of what price it actually processed at, we’ll look at that price. We’ll look at the average wholesale price.

We’ll calculate the discount of that claim and all claims in that bucket and see if it hit the discount. If it didn’t, guess what? PBM has to true up.

Madison Connor (3:08)

So, when we think about tying this into the recent regulatory developments that you mentioned, let’s take the CAA 2026 pass-through requirements. So, PBMs have to pass through 100% of rebates to plan sponsors. That refers to the rebate reconciliation.

Whereas, whenever we think about the Federal Trade Commission settlements, there are some provisions in there that say that rebates have to be passed through at the point of sale, which would relate to adjudication. Is that a fair summary?

Mike Stull (3:36)

That’s exactly right. So, I like how you switched from discount guarantees to rebate guarantees because it does, it applies to both. So, I think that the PBMs certainly in their new models are presenting both types of guarantees.

So, if we think about CVS’s true cost model, true cost sets a unit price. And for brands, that unit price is net of rebates. And some folks, as they’ve taken a look at these unit prices, I should say that they’re set by GPI 14s.

But as they look at those unit prices, they think, oh, that’s what I’m going to pay now at the counter. And that’s not accurate. So, for true cost, those are reconciliation guarantees.

It doesn’t necessarily tell us what the price is actually going to be at the point of sale. It just says that at the end of the year, we’re going to take all brand claims for that particular product or all generic claims for that particular product or that particular GPI 14. And we’re going to make sure that overall, our average unit price that we paid was X amount.

So, that’s how true cost works. I think from a rebate perspective, all we know is that from a reconciliation perspective, as you said, we have to reconcile to 100% of rebates. The FTC tells us that some portion of those rebates have to be applied at the point of sale so that it benefits participants.

I think as we take one more step into the cloud of confusion that surrounds all of this legislative and regulatory action that’s out there, that how the FTC has defined rebates, at least in the ESI settlement, how the CAA is defining rebates are different. So, we would hope that through the rulemaking process of the CAA, future FTC releases that there’s some type of similarity in terms of how rebates are defined.

Madison Connor (5:55)

We already see a little bit of this confusion at the state level as well. So, different states may have rebate pass-through requirements that have different definition of rebates. Florida versus Illinois, and that may be why you have a state-specific addendum at the end of your contract.

So, that’ll be interesting to see as well how that relates to the federal implementation over the next few years. As always, at the end of these episodes, I ask you to bottom line it for me, Mike. Why is this important for employers and plan sponsors?

Mike Stull (6:23)

Yeah, two reasons. I think the first is just understanding what you’re going to pay and when you’re going to pay it. Understanding the difference between, you know, the price that’s paid at adjudication versus the price that’s guaranteed through reconciliation.

Helps you better understand how your PBM is going to perform. It also helps you when comparing one PBM offer to another. The second one is budgeting.

So, again, cash flow is super important to most of our clients. And so, they want to know, what am I going to pay at the point of sale? And what ultimately is the PBM being held accountable to?

And then, how do those true-ups work? That’s not new. We have that today in PBM contracts.

We see discount reconciliation true-ups. We see rebate true-ups. So, it’s something that we have today.

It’s something that these new models aren’t necessarily going to cure for. And so, we have to be ready and we have to understand how the payments will work under these new models.

Madison Connor (7:40)

Well, great, Mike. I think that that may have been our most bite-sized update to date.

Mike Stull (7:46)

And probably the most fun. Who doesn’t like a good conversation about adjudication and reconciliation?

Madison Connor (7:53)

Well, thanks so much for joining us today. We’ll see you next time.