6 Audit Rights Employers Should Have in their PBM Contracts

By Craig Oberg
Wed, Aug, 16, 2017 @ 10:08 AM

A CEO of a Fortune 100 company was meeting with the head of benefits and asked how that department verified the accuracy of the $100 million spent on prescription drugs the previous year. The benefit manager’s response was, simply, “We didn’t. “

Unfortunately, this scenario is quite common. In fact, as many as eight out of every 10 large employers simply trust their Pharmacy Benefit Manager (PBM) to administer the drug benefit accurately, year after year.

Our opinion is that too many employers get lulled into a false sense of security that their PBM is already delivering maximum drug savings. One reason is that PBMs are good at delivering lots of reports and analyses to their employer clients – giving the impression that they are keeping a close watch on things. Another is that virtually all PBMs provide employers with year-end reconciliation reports and pay money back if certain savings guarantees as stated in the contract (example: you will receive 78% off the price of generics in aggregate) are not met.

The only way to truly verify whether your PBM is working as hard as it should on your behalf is by conducting regular audits. Today – given the very high dollar amounts involved, largely due to specialty drugs – the monetary stakes for employers are greater than ever. With millions of additional dollars in savings potentially at stake that would go unnoticed otherwise, conducting PBM audits that typically uncover these “hidden” savings is becoming critically important to companies’ bottom lines.

But employers may be limited in how effective these can be depending on what audit rights language is in their PBM contract. Here are six audit rights and provisions employers should make sure they include in their PBM contracts to have maximum auditing leverage:

  • Rebate audit rights: With today’s rebate dollar amounts at an all-time high, it’s critical that employers have rebate audit rights. About 60% of the rebate audits we perform uncover significant errors totaling anywhere from tens of thousands of dollars to millions of dollars. So be sure that rebate audit rights are in your PBM contract.
  • Audit timeframes: Your contract should narrow the time frame for any audits, so the PBM can’t drag out the process. For a typical audit, you should specify that the PBM is to provide the requested data within 30 days of the request, not 60 or 90 days.
  • Auditor of choice: Your contract language should specify that the employer, should you decide to exercise your audit rights, can select an outside auditing firm of its choice. Some PBMs will try to limit employers to using only select firms, which may or may not have the level of expertise needed to conduct an accurate audit. (When selecting an auditor, it’s generally advisable to avoid those that charge on a contingency basis, as this can negatively alter the incentive for conducting the audit. Ideally, a thorough audit should reveal that the PBM was administering the benefit accurately.)
  • Audit expenses: Your contract should specify that each party, i.e., the employer and the PBM, is responsible for its own costs of conducting the audit. Specifically, the PBM should not be able to charge the employer extra fees for the time and resources it spends in collecting and providing the requested data. Likewise, the employer is responsible for the costs of hiring an outside independent auditor.
  • Broad audit rights: Your contract language should include broad provisions that allow you to audit the PBM for any area you choose. This goes beyond or in addition to rebate audits and includes pharmacy pricing audits; performance guarantee audits; pharmacy benefits plan audits, and other areas. Keep in mind that you should be able to audit the PBM to make sure it is applying Utilization Management (UM) and other formulary controls accurately – because not doing so leads to missed savings opportunities. And it is not uncommon for PBMs to get these wrong, especially if the PBM had changed adjudication rules or moved to a new platform.
  • Be aware of blackout dates: Some PBMs will want to limit your ability to audit only during certain quarters of the year, or will only allow you to audit as far back as one year only. Such blackout periods can significantly delay your audit and/or make you ineligible to go back and audit for time periods you want to examine in depth. It’s best to work with a consultant who understands PBM audit procedures and requirements so that any blackout dates specified are fair to both parties.

Conducting PBM audits on a regular basis is one of the best offensive strategies employers can use to keep the lid on rising drug costs. So, make sure you go to the PBM negotiating table knowing what you want your audit rights to be in advance.