PBM Market Checks: Tips to Maximize Your Negotiating Leverage and Savings

By Steve Baumgardner
Wed, Oct, 02, 2019

In today’s market, PBM services become more competitively priced very quickly.  This means that the great pricing you negotiated and contracted for just a year or two ago is already outdated (and no longer competitive) by the second and third year of your three-year (or longer) PBM contract.  

As a result, more health plans of all sizes are including market check language in their PBM contracts to maximize total drug spend savings over the life of the PBM contract.

Whether you are crafting new market check language for a contract or executing a market check provision, there are numerous pitfalls health plans should avoid to fully capitalize on favorable pricing opportunities.

A PBM market check allows health plans to compare their current PBM contract’s financial arrangements against prevailing current market conditions and prices.  If this mid-contract review finds that the health plan’s prices aren’t competitive with current market rates offered by PBMs, the health plan can typically negotiate further price concessions from the PBM for the remainder of the contract.

Given how quickly PBM pricing and rebate potential changes in today’s market, having effective market check language included in the PBM contract is highly effective in helping health plans maximize pricing leverage without necessarily always having to go out to bid.

That said, how much a plan actually saves will depend on how well (1) the initial market check provision language is crafted in the original contract, (2) the pricing and appropriate pricing parameters were established during the procurement process, and (3) the health plan understands the nuances associated with the unique aspects of their individual market.  It also depends on how well the plan or its associated agent negotiates with the PBM, a process that is often challenging.

The following tips help health plans craft effective market check language, avoid common pitfalls, and identify best practices while exercising a market check provision.

Crafting Effective Market Check Language for your Contract

  • Avoid market check language that gives your PBM too much leverage to say ‘no’ to your requests for better pricing. A common pitfall is for plans to agree to market check language that will allow them to compare their pricing to that of another plan of comparable size in its market.  But if your plan is already the largest in your market, this isn’t possible. The PBM knows this upfront, first when it negotiates your contract and second, when it responds to your market check.
  • Keep in mind that rebates can be difficult to market-check, especially if you have a custom formulary. If you include rebate guarantees in your market check, separate the evaluation of the rebate guarantee from the evaluation of other (non-rebate) guarantee components.  The PBM contracts for rebates independently of non-rebate pricing components.  Don’t let them offset in a market check.
  • Make sure your contract establishes a specific percentage (as close to zero as possible) that the value of market rate changes will have to exceed your contract’s current performance before the PBM is required to renegotiate terms.
  • The best market check strategy can be to have no market check language at all included in your contract. A term for convenience provision in your PBM contract allows you to terminate your PBM contract at any time, usually after the first year.  You can use the threat of termination to negotiate improved pricing terms. If you go this route, make sure you have the time and resources to negotiate mid-contract pricing at your discretion -- and a back-up plan in case you don’t reach agreement with the PBM.

Successful Market Check Execution

  • Advance planning is very important if you want to have effective re-negotiations with your PBM. Know where you are in the lifecycle of your PBM contract, the current market pricing environment, and allow sufficient time in advance to plan and allocate the necessary resources to take action.
  • Always exercise the terms of your market check provision (assuming you have one in your contract) in order to gain pricing improvements. Remember: no matter what the PBM has delivered to date, exercising your market check rights almost always results in obtaining better pricing for the remainder of your contract.
  • Understand that executing a market check is a negotiation. Even with the best comparators, analysis and report, the PBM will likely challenge your findings to strengthen its position.  Because of this, many health plans hire an outside firm whose experts are familiar with, and comfortable with, PBM negotiating tactics.
  • Always focus on re-negotiating the remaining PBM contract term to get improved pricing right away, before you agree to or negotiate for an extension to the contract. Use any potential contract extension as leverage.
  • Keep your rebate calculations separate from other PBM pricing (network performance, dispensing and administrative fees, retail and mail discounts, etc.). Don’t allow overperformance on rebates to offset underperformance on PBM pricing such as retail discounts.  Follow your required process language but, for clarity, keep rebates separate from the other PBM pricing in the analysis.   

In today’s market, many PBMs are willing to make deep price concessions rather than risk losing existing health plan customers.  Including effective market check provisions in your PBM contract can generate significant health plan savings and ensure that your pricing doesn’t become stale in the later years of a contract term.  If your plan hasn’t done market checks before, now is a good time to start.  It’s also advisable to outsource your PBM market check using a qualified, experienced firm that has a good pulse on current PBM market pricing, and is skilled in handling PBM negotiations and procurement.

Keep in mind that the PBM industry and pharmaceutical landscape continues to constantly change. It is in your members’ and your plan’s best interests to have competitive financial terms throughout the contract term.

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