Understand Your PBM Contract
Is Your Company Confounded by PBM “Jargon” and PBM Boilerplate Contract Terms? Here are a few “basics” you should understand:
What Is “Average Wholesale Price” or “AWP”? Average Wholesale Price or “AWP” isn’t the average price, isn’t the wholesale price, and isn’t a price on which any PBM client should rely. In fact, in recent years, the difference between AWP - paid by PBM clients to reimburse PBMs - and actual available wholesale prices - paid by PBMs to purchase drugs - has constantly widened - from approximately 20% to approximately 25%. This growing differential means PBMs have increased their profit margins, while your company has incurred higher costs. Accordingly, your PBM contract should “peg” your prices to your PBM’s actual costs - not “AWP” - through contract terms mandating “pass-through pricing.” Notably, many PBM/client contracts purport to provide “pass-through pricing”, but almost none do. Pharmacy Benefit Consultants can assist your company in negotiating and drafting a contract that will ensure “pass-through pricing” for ALL types of drugs (retail, mail and specialty drugs).
What Is “Maximum Allowable Cost” or “MAC”? Virtually all PBM/client contracts state that retail generic drugs will be priced based on the “PBM’s Maximum Allowable Cost” or “PBM’s MAC”. However, the PBM’s Maximum Allowable Cost or MAC is a price that is an entirely fictitious price, made up entirely by the PBM! As a result, PBMs can charge any price they want for retail generic drugs, and PBMs can increase retail generic drug prices whenever PBMs want to do so! Few PBM clients realize that their PBMs are frequently charging as much - or even more - for generic drugs as the PBMs are charging for brand drugs. Thus, while the marketplace touts generic drugs as less expensive than brand drugs, many PBMs clients are receiving little - or no - benefit from increased generic usage. Accordingly, your company should eliminate existing MAC contract language and generate new generic pricing terms that enable your company - not your PBM — to benefit from generic drugs’ lower costs. Pharmacy Benefit Consultants drafts and implements contracts that entirely change all generic pricing terms, eliminating MAC pricing, and replacing it with pricing that ensures your plan will retain all generic drug savings.
What Are Specialty Drugs?Biotech and injectable drugs - also called “Specialty Drugs” - are among the most expensive drugs in the marketplace, averaging $1,170 p/month. Moreover, experts project that Specialty Drug prices will increase 20%-40% per year. Most medical plans use “J-Codes” to process Specialty Drug claims, allowing charges that range from AWP to 2,000 times AWP. Accordingly, your company should carve-out all Specialty Drug claims from your medical plan, and require doctors to obtain all Specialty Drugs through a specialty vendor. Moreover, your company should renegotiate its PBM contract, identify all Specialty Drugs, and specify minimum discounts, for EACH specialty drug (ranging from AWP-15% to AWP-80%). Your new PBM contract should also require your Specialty Drug vendor or PBM to meet quarterly to review new Specialty Drugs, and to revise Specialty Drug minimum discounts to ensure that your Specialty Drug discounts remain as good as can be obtained in the marketplace, throughout the life of your contract.
Why Isn’t My Company Benefiting As Anticipated From Drug Manufacturer Rebates and Discounts? PBMs claim that their marketplace size creates leverage to demand that manufacturers provide rebates and discounts for PBM clients. But PBMs - not their clients - retain most manufacturer rebates and discounts. Indeed, most PBMs pass through to their clients only a small portion of total manufacturer payments and discounts. Moreover, virtually all PBMs refuse to disclose information concerning the rebates and discounts PBMs are being paid. In fact, most PBMs claim such information is “proprietary” and point to contract terms that allow PBMs to keep all such information secret. Accordingly, your contract should eliminate existing contract language and replace it with language that enables your company - not your PBM - to benefit from all manufacturer payments. When Pharmacy Benefit Consultants conducts PBM RFPs - and/or drafts and negotiates new PBM contracts for our clients - we do just that!
Contact Pharmacy Benefit Consultants — and learn more about the above issues - and numerous others - that are driving up your prescription coverage costs.