Employer Blog

Pharmacy Benefit Management (PBM) contracts are complicated, nebulous, and non-transparent on many fronts. So how can employer purchasers really know what is going on behind the scenes? How can employers trust PBMs to do what is in the best interests of the employer’s finances, versus what’s most profitable for the PBM?

We’ve compiled the following list of things PBMs would rather you didn’t know about PBM contracts. Knowing these ahead of time will make your company a savvier purchaser of PBM services, and put you in a stronger position when it comes time to sign or renegotiate subsequent PBM contracts.

• PBMs have many “hidden” revenue sources. Traditionally, PBMs have made money off the rebates they negotiate from drug manufacturers. But in recent years, as employer clients have garnered a greater percentage of those rebates back from the PBMs, PBMs have sought out and implemented new revenue streams. One of these is selling data on drug utilization patterns back to manufacturers. The manufacturers, in turn, use the data to develop sales and marketing strategies for their drug products. Sometimes, it will be specified in the PBM contracts that the PBM may sell de-identified data regarding your employees’ or members’ usage of these drugs to manufacturers. But other PBM contacts will not mention this. Don’t be afraid to ask for this information, as it is your right as an employer to know. You can also ask that your information not be used by the PBM. And be aware of the potential conflict of interest a PBM has between controlling employer drug spend on the one hand while sharing utilization data with drug companies looking to boost drug utilization and sales.
• Not all PBMs have rigorous Prior Authorization (PA) programs in place to control utilization and costs. As many employer purchasers know, PA means that a patient cannot get coverage for a specific drug product under certain circumstances unless the physician first demonstrates medical necessity. PA can include “Step Therapy,” which requires that a patient first try or be placed on a less expensive drug option. (If the less expensive option is tried and fails, then the patient is approved to receive the more expensive drug). It is especially important to know, based on your PBM contracts, how rigorous, or not, your PBM’s PA programs are for specialty pharmaceuticals, which can often cost several thousand dollars per month.
• PBMs would rather improve or sweeten your PBM contract terms in the final year of your contract than have you go out to bid. Many employers mistakenly assume that once a PBM contract is signed, it’s over and done with, and further negotiation isn’t feasible. But the market is changing very quickly. This means rebates and discounts you negotiated 2 or 3 years ago as part of your PBM contracts are no longer competitive, given the amount of rebates and discounts available in today’s market. If you are in the later years of your PBM contract, you can ask your PBM to re-negotiate at a better rate before the contract is up, especially if you are willing to renew. PBMs will often agree to this rather than have your company go out to bid.
• PBMs are afraid of losing your business. Many employers mistakenly assume that they have little clout or leverage in today’s market. That’s because PBMs have consolidated to the point that there is hardly any competition left. But in fact, employers still have an edge. Because there are so few PBM players, and because PBMs have little if any room for organic market share growth, the only way PBMs can grow or maintain their revenue is to take business away from their competitors. So this gives employers a lot of negotiating leverage to get better pricing in their PBM contracts.
• Employers that use qualified, experienced PBM consultants get better deals as part of their PBM contracts. Given the complexity of dealing with PBMs, it is advisable to use an independent, expert consultant who can help you navigate the terrain. Consultants know the latest marketplace pricing and other trends so you can take advantage of emerging opportunities and include specific terms in your PBM contracts. Consultants with deep expertise know from experience what pitfalls to avoid and how to compensate and adjust so you can get a more favorable outcome. Think about how many PBM contracts you see each month versus how many are reviewed by a solid consulting firm that focuses on that industry. It’s somewhat akin to having surgery: you will want to go with the surgeon who has done the most procedures to increase your chances of a successful outcome.

Knowing that you have more clout with your PBM than you may have realized, combined with the tips provided here, should give you new negotiating tools to get the best pricing available.