Employer Group Issues Guide for Contracting with PBMs

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The National Alliance of Healthcare Purchaser Coalitions has issued a playbook to help companies navigate what they see as a flawed PBM contracting model and lack of competition.

Self-insured employers want PBMs to act as fiduciaries, acting in the best interest of companies and their employees. This is especially true now because the Consolidated Appropriations Act of 2021 (CAA) has put increased disclosure requirements on self-insured employers.

Michael Thompson

Michael Thompson

The PBM intermediaries, however, have concentrated their buying power, created complexity in contracting and created incentives that, in effect, have rewarded the PBM instead of purchasers and patients, according to Michael Thompson, president and chief executive officer of the National Alliance of Healthcare Purchaser Coalitions.

“As an ERISA fiduciary, we have to oversee how the money is spent to make sure the right decisions are being made for the plan and the beneficiaries,” Thompson said in an interview. “Instead, what we are seeing is a high degree of self-dealing and high margins but also misalignment in a sense that their decisions don’t improve the value for their customers.”

To help employers better assess how their PBMs are managing the drug benefit, the National Alliance has released a playbook. The resource offers insights on the drivers of pharmacy benefit costs and value, as well as the flaws in the contracting and negotiation process. The National Alliance includes what it calls the top 10 pharmacy benefit management concern. (See list below.)

“There is broad agreement that there are major problems in the PBM industry,” Thompson said. “As a fiduciary, we have an obligation to eliminate conflicts of interests that are arising systemically. This is causing quite a bit of costs and creates challenges for beneficiaries to get the drugs they need.”

The rebate mindset, he said, has contributed to many of the issues. PBMs share in the rebates, which are often given on high-priced drugs. They reduce costs to the PBM and the plan or employer. “Many people felt that taking a big check to the CFO meant they were doing a great job, but those rebates were also generating higher drug prices,” Thompson said. “It turns out, people are paying for their own rebates.”

The organization suggests that partners have transparency on manufacturer payments and provide pass-through pricing, as well as focus on value, outcomes, total cost of care, member affordability and adherence. “At minimum, there needs to be transparency to show that PBMs are acting in good faith and not manipulating things behind the scenes,” Thompson said. “I want to work with people I trust. And right now, PBMs are one of the least trusted.”

The playbook suggests that employers maintain broad audit rights, that contracts define terms, own the data and customize formulary and utilization management. It also includes best practice checklists, sample questionnaires for selecting consultants and recommended contracting language. Included as part of the recommendations is that employers chose independent and qualified advisors who are aligned with the employer’s fiduciary obligation.

National Alliance’s Top 10 PBM Concerns

1. Promotion of higher-price drugs when lower-price drugs are available.

2. Coverage and/or preference of a brand when a generic or biosimilar is available.

3. Coverage of specialty drugs for circumstances that clinical evidence does not support.

4. Automated approval process for prior authorizations causing rates to soar over 90%.

5. Redefining generics as brand drugs or vice-versa to manipulate guaranteed pricing discounts.

6. Systematic approaches to encourage waste including refilling too soon or automatic 90-day refill.

7. Coverage of high-cost, low-value drugs such as drugs that have less expensive over-the-counter alternatives.

8. Replacing drugs eligible for rebates with 340B drugs not eligible for rebates, without passing through the substantially lower price of 340B drugs.

9. Narrow definition of “rebates,” which allows the PBM to “pocket” 50% or more of the manufacturer revenue because they have been recharacterized as something else.

10. Plan sponsors being “held hostage” on any and all PBM contract terms, financial guarantees, and provisions regardless of magnitude of desired benefit changes.

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