Are your PBM pricing discounts seriously underperforming?

By Chris Hanson-Ehlinger
Mon, Apr, 07, 2014

Audit guyPricing guarantees are tricky. Even with a traditional arrangement (locked-in brand discounts and dispensing fees) you still have to account for generic pricing and aggregated guarantees often can’t be calculated until the end of the year. Measuring generic effective rates in the middle of a pricing term is difficult, too, and your PBM may argue that any sign of underperformance is not a cause for concern because the term is incomplete.

So can you prevent or recoup discount underperformances?

Yes. Let’s start with prevention, assuming all parties involved would rather avoid issues then correct them.  

Monitor pricing performance regularly. Request that your PBM or PBM consultant run quarterly analyses. Your PBM may push back, arguing that incomplete data means nothing. Don’t believe it. Regular reports are helpful and provide insight into how your plan is performing. If an early analysis shows poor results, you and your PBM now know what’s ahead of you for the rest of the contract term. Performance always vary month to month, however, if performance is significantly below the guarantee, you can leverage the PBM to make improvement for the rest of the year. Consistent attention is your best tool to influence outcomes and as a vendor, your PBM should be working hard to meet your needs.

Negotiate interest penalties. Interest penalties have become more common over the last six months. When a PBM performs poorly, dollars that belong to your plan and your members, stay in the PBM’s pocket. Eventually, PBMs pay these dollars back, typically long after the claims have been paid for by the plan and members. In the meantime, you’re providing your PBM an interest-free loan. Interest penalties and payments encourage PBMs to actually perform to their contractual guarantees instead of underperforming and reconciling in the future.

Even with these preventative methods, your PBM simply may not meet the guarantees. That’s when you need to recuperate the dollars owed to you. Here’s how:

Perform regular audits. If your PBM isn’t providing performance results often enough to meet your needs or if the results consistently come up short, you need to engage a PBM auditor. While audits require a financial investment and other resources, they are guaranteed to grab your PBM’s attention. Audits are collaborative processes and quite often result in recoverable shortfalls. Finally, audits provide a sentinel effect: a PBM may be more detailed when calculating your shortfall knowing that your auditor is double-checking the math.

Re-negotiate terms with purpose and clarity. Renegotiating isn’t quick or easy and may not do much for your current pricing term. However, it is well worth the investment and is your best bet for protecting future performances. Tight, uncompromising, detailed definitions bind your PBM to a higher performance standard and don’t allow wiggle room for misinterpretation.

In every case, a well-executed contract is always your best protection. You can proactively negotiate reporting requirements, penalties and auditing rights that put you in control of your PBM’s performance and provide a means to recover lost dollars. Talk with your PBM consultant before your next renewal or market check.

Lynn Stauffer, audit lead at The Burchfield Group, specializes in Medicare compliance. For more information, call us at 800-778-1359 or send a note to

Copyright © 2014: The Burchfield Group. All rights reserved. No part of the content contained herein may be transmitted, redistributed, copied, stored, downloaded, abstracted, disseminated, circulated or included as part of any other service or product. For all permissions, please contact