Market Checks: A Must for Health Plans Negotiating Their PBM Contracts

By Steve Baumgardner
Thu, Nov, 29, 2018

One way for health plans to get the best possible pricing from their PBMs is to include an effective market check provision in their PBM contracts. If your health plan hasn’t done market checks before, now is a good time to start planning, especially if you will be putting your current PBM contract out to bid in the near future.

A PBM market check allows health plans or their acting representatives to compare their current PBM contract’s financial arrangements against prevailing current market conditions and prices. If it’s determined that the health plan’s prices aren’t competitive with current market rates offered by PBMs, the health plan can generally get price concessions from the PBM for the remainder of the contract. (Typically, the health plan would conduct the market check during year two of a three-year contract.)

There’s a lot of money and potential savings at stake. Although savings will vary based on how well your plan has previously negotiated with your PBM, having effective market check language in your PBM contract generally leads to significant savings.

The reason is simple. In today’s market, PBM pricing changes substantially and frequently. So the price you negotiated just a couple of years ago may already be “obsolete” by the time your plan enters the middle or later part of its contract term. The beauty of a market check is that it allows plans to take advantage of these rapid and often-substantial price fluctuations without always having to go out to bid.

Many PBMs are willing to make deep price concessions to keep their existing health plan customers rather than risk losing them.

Including market check provisions can help health plans of all sizes maximize their savings and negotiating leverage with PBMs during the contracting and RFP process. However, there are important caveats to be aware of:

  • A health plan must have a specific clause in its contract with the PBM giving you the right to review your contract while still in effect for certain markers or parameters to determine the price competitiveness of your arrangement.
  • When including this in your contract, you will need to set the right parameters. By what percentage would the market rates have had to improve (compared to your contract’s current performance) before the PBM would be willing to renegotiate its terms?
  • The process for including and enforcing a market check is rarely simple. You’ll need to spell out in your PBM contract how the market check is conducted, who determines the validity of the market check findings, and when and how often you can evaluate the contract terms.
  • If left entirely to the PBM, it is likely to include language in the contract that would make it difficult for plans to know if the market check process will yield meaningful improvements.

If your plan will be renewing or going out to bid on your existing PBM contract, here are some important things to consider regarding market checks:

  • Be aware of common contracting pitfalls. Some PBMs will try to narrow comparison parameters so your prices are compared against those of similarly sized plans in the same geographic region. You will want broader parameters to get the best savings.
  • Negotiation timing and advance planning are very important. It’s best to include a market check in your contract as part of a broader plan or strategy to help you get control over drug prices and rebates over the life of your PBM contract. It’s important to evaluate where you are in the lifecycle of your PBM contract at all times, again, to allow sufficient time to plan and allocate the necessary resources to take appropriate action -- whether a market check or full RFP
  • Outsource your PBM market check using a qualified, experienced outside firm that has a good pulse on the market. Using internal resources to conduct a market check leaves an important component out of the process, which is industry pricing to benchmark against. An experienced firm will factor all of this into the market check which increases the health plan’s negotiating power.
  • Make sure the outside firm you work with does more than just look at claims history. Your firm should be able to account for changes in drug utilization, growth in specialty drugs, and inflation in order to establish accurate baselines for future costs.

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