Is your PBM contract ready for the future?

By Joel Sedgeman
Wed, Jun, 24, 2015 @ 14:06 PM

Joel_SedgemanYour PBM contract protects the financial stability of your pharmacy benefit

Though your PBM contract may not change frequently, it is a crucial partner in protecting the financial stability of your pharmacy benefit from the uncertainty of market events. PBM contracts typically address past industry practices, but may not address areas that have the potential to become problematic in the future.

PBM contracts can’t account for every possible market event, but here are five critical areas to evaluate whether your contract is prepared for the future:

5 critical areas to evaluate


Biosimilars are essentially copies of existing biological medications (made from living cells) that do not fit neatly into established drug categories. This presents a vulnerable pricing area that PBMs may use to their advantage, rather than yours, if you do not have specific language about how biosimilars will be priced and incorporated into your guarantees.

Specialty drugs

New specialty drugs are launching every quarter. An outdated or rapidly renewed contract may overlook this pricing item and allow your PBM to arbitrarily declare the discount you will receive on these drugs. A good PBM contract will provide specific parameters as to how new specialty drugs will be priced and provide a mechanism for disputing those prices.

PBM acquisitions and mergers

PBM mergers can be disruptive to plan sponsors for multiple reasons. Your PBM may be distracted in coordinating the logistics of a merger and service may suffer. If adjudication platforms are merged, even more problems may develop. Some PBM acquisitions may also result in competitive concerns—a previously independent PBM may be less so after being acquired.

Request that your PBM agree to specific language in the contract that allows for early termination or modifications in the event of a change of control. This type of language can provide you with an escape hatch, should you determine your PBM merger is unacceptable.

Discount and dispensing fees

Network discount and dispensing fee pricing can become stale quickly. Your PBM contract should provide competitive pricing (including annual improvements) for the next two to three years, while allowing you to completely renegotiate pricing (either through a renewal or RFP) at the end of the contract term.


Inflation protection provisions and the influx of high cost specialty drugs have led to increasingly aggressive PBM rebate guarantees. If your PBM drug rebates have not increased significantly in the last five years, your contract may be in urgent need of a market competitiveness review.

A future-looking contract and vigilant market oversight keeps your pharmacy benefit financially competitive and gives you options to adapt to the changing pharmacy industry.


Joel Sedgeman, J.D., consultant and strategic services lead at Burchfield, provides analysis on issues such as PBM operational performance, financial performance and regulatory considerations.

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