A girl in a pharmacy benefit management center and taking medicine in her hands

PBMs, or pharmacy benefit managers, are third-party organizations in the healthcare system that handle the logistics of dispensing and tracking prescription medications. Pharmacy Benefit Managers act on behalf of Payors such as Medicare Part D Plans, Employer-Sponsored Plans, Managed Medicaid Plans, and Health Plans.

Pharmaceutical spending can climb uncontrollably without tight management, which is why PBMs have become crucial partner in healthcare. Operating behind the scenes, PBMs are responsible for lowering prescription medication costs, which they might accomplish through various methods.

The core roles of pharmacy benefit managers include:

  • Formularies, prescription lists, UM tactics, and PA criteria development all decide how much members pay out of pocket.
  • Negotiating discounts and rebates from drug manufacturers
  • Negotiating with the huge matrix of the pharmacy network to achieve the best pricing for Plans and pharmacies and enhanced access to care for members
  • These are typically intricate in nature and call for collaboration amongst numerous parties.
  • There are numerous elements to be addressed when a PBM bears these obligations.

What are the varieties of PBM contracts?

More and more health insurers and health plans are questioning the status quo and looking for greater responsibility, transparency, and superior performance from their PBM, which has caused a significant shift in the marketplace in recent years. Taking a cookie-cutter approach is rarely beneficial to customers. In addition to differences in age distribution and willingness to take risks, the composition of each plan’s population is unique.

It’s important to note that there are many different kinds of contracts.

Standard PBM Agreements

Most current contracts belong within this category, and monitoring for compliance with the terms of these contracts is typically the most labor-intensive and time-consuming. Traditional PBM contracts produce bigger rebates to create “cost savings.” Furthermore, the PBM cannot charge the client any administrative costs in this arrangement. However, masked under the contract terms is something called “spread pricing,” which is a large revenue driver for PBMs. The term “spread pricing” refers to the discrepancy between the amount a PBM pays to the pharmacy for a certain member’s medicine and the amount it charges the customer. One interesting aspect of this setup is the potential for vested interest conflicts.

Pass-through Contracts

With a pass-through agreement in place, the PBM moves to a completely open model that may save money for the client through (complete) rebate pass-through and other means. Because pass-through PBMs pride themselves on being open and honest, they usually lay out all of their fees and costs upfront. Utilization management tactics and formulary control may be more extensively tailored under a pass-through structure.

A Look at Hybrid Agreements

A hybrid contract combines pass-through with more standard forms of modeling. PBMs may still make money through fee-based services and spread pricing, but this information will be presented more clearly to customers. That stated clients are better positioned to get a percentage of the income earned through, for example, rebates passed on from the manufacturer to the PBM. However, because a hybrid model does not provide complete transparency into actual cost-saving potential, there is a chance that incentives will remain slightly mismatched.

The Contract

The sheer volume of PBM contracts and the level of care required to manage them effectively are both daunting challenges. Ensuring the Plan’s contract is clear and free of flaws is essential to its success. Understanding the complete agreement is vital for the Plan’s preservation. Depending on the nature of the agreement between the Plan and PBM, these contracts might be quite extensive.

It is essential that all parties fully grasp and agree upon the definitions presented. The definitions are sometimes nebulous, which opens up various doors that can lead to wasteful spending. It is crucial to ensure definitions align in the Plan’s favor and are best stated to safeguard the Plan.

Both financial and performance guarantees are important aspects of contracts to consider. Whether the guarantees are monetary or performance-based, the customer must A) know what they entail/cover, B) know how they will be measured/monitored, and C) make sure they have complete control for audibility. With this level of control, the PBM can take on additional responsibility and share the associated risks.

Contract Management Throughout a Pharmacy Benefits Manager’s 

The pharmaceutical business is largely responsible for the fast transformation of the healthcare sector. Plan Sponsors must approach their PBM relationship with an eye toward the industry’s inherent volatility. Extended contract durations may make it difficult for Plans to renegotiate conditions in response to market shifts.

Procurement or oversight is included in the PBM agreement. In an ideal world, the contract would also have optimization flexibility to account for the inevitable maturation of the sector.

In many cases, acquiring something can be lengthy and entailed. When comparing Medicare and Medicaid plan sponsors to commercial or employer-sponsored plans, there are several additional factors to evaluate, including compliance and reporting. The necessity of adaptable contract terms that enable monitoring and optimization should not be overlooked because of the process’s intricacy and details. Certain language must be included, and PBM interest-protecting loopholes must be closed for this to be possible.

An argument must be made that keeping tabs on how well a plan is working is just as crucial as the actual deal struck. A PBM’s promise to fulfill its obligations under the contract is no guarantee of actual performance. The responsibility for ensuring the vendor sticks to the agreed-upon terms and pricing rests squarely with the Plan Sponsor. Access to timely information and having tools to review performance after obtaining that data are crucial to succeeding in this area. Errors in processing and payouts become more possible as claim numbers rise. However, plans should never presume that claims are being processed normally, even if they appear to be.

Optimization should not occur solely at contract renewal. There is far too much technological progress out there for businesses to ignore. Plan Sponsors should not be constrained in their efforts to expand and adapt in response to market demands, as long as they know that major changes cannot occur midway through a plan year.

Thorough knowledge of the PBM contracting lifecycle is useful whether you are still within the confines of your current agreement or are actively searching for a new PBM. Acknowledging that securing the contract is only the beginning rather than the end gives the Plan more leeway to produce favorable outcomes for all parties involved. For more information visit https://www.spectrumpsp.com/.

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