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Five Biggest Problems With Most PBM Deals

Blog Post
January 12, 2022
By: Capital Rx Communications
Topics: Contracting

Pharmacy benefit managers, or PBMs, are closely associated with drug spending, along with drug manufacturers and pharmacies. They also influence the setting of the cost of drugs for health insurance companies, as well as the ease with which patients get their medication. This also means that PBMs are under a lot of scrutiny and constant monitoring.

There are some common problems that are associated with deals that involve pharmacy benefit managers, and negotiations often end in unfavorable terms, causing significant loss on the part of pharmacies and drug consumers as well. In this blog post, we have a look at five biggest problems that arise in most PBM deals.

Problem #1: AWP and MAC lists can be manipulated easily

The very first concern that arises in PBM deals is the manipulation of Average Wholesale Price (AWP) and Maximum Allowance Cost (MAC) lists, which can be easily done by pharmacy benefit managers to appease one stakeholder while others are made to suffer. The Average Wholesale Price (AWP) refers to the average price retailers have to pay to the wholesaler to get a certain drug. A benchmark is set for the AWP value, which is then used to set drug prices and also reimbursement policies for third-party buyers.

The worst part is that the AWP isn’t an actual representation of the drug price, and it can vary anywhere between 25% to 95% of the actual price. It is also unaffected by the rise and fall in prices, and even when the prices for generic drugs go down, the AWP still rises. Another factor that hinders the process is that there is a common AWP for branded and generic drugs, which makes it difficult for common people to afford medication.

On the other hand, the Maximum Allowance Cost (MAC) is used to determine the generic reimbursement rates between PBMs and retailers, and they are completely under control of the PBMs. Moreover, these PBMs also handle numerous MAC lists for different chains of pharmacies at the same time, thus allowing them to move clients from one list to the other for tweaking the overall performance.

Solution: Replace AWP/MAC with a more rational price list.
A cleaner way to define price is for individual drugs referencing NADAC, which provides average acquisition costs at the NDC-11 unit level. NADAC eliminates the PBM’s ability to manipulate pricing for retail claims, gets rid of the need for elusive brand/generic price buckets, and objectively tracks actual industry economics.

Problem #2: PBMs can maximize utilization of expensive drugs

Another major issue that arises in PBM deals is the utilization of expensive drugs, which is conducted by PBMs. This issue pertains to mail order and specialty pharmacies, where PBMs have complete control and can easily direct more sales towards drugs that would bring them more profit, rather than choosing a drug that would be more beneficial for the patient.

PBMs also have the power to eliminate competition by directing more orders towards specialty and mail-order pharmacies that are under their control. What’s even worse is that they can also find a workaround for the authorization requirements that are in place to determine whether a person needs a certain drug or not. Therefore, they would be able to administer a more expensive drug without considering whether the patient needs it or not.

Solution: Identify PBM partners that do no own conflicted assets.
To counter this issue, there should be an emphasis on choosing PBMs who don’t own any specialty or mail-order pharmacy, and they should direct patients according to their health plan and course of treatment. This would greatly eliminate the exploitation of certain drugs and also make a third-party subcontract essential.

Problem #3: PBMs can direct people towards high-cost rebate products

Another factor that comes into play when discussing PBM deals is profitability, and there is no secret that PBMs can earn more hidden revenue and manipulate pharmaceutical profits by compelling customers to buying a certain drug, just because its rebate is very high. Because of this, it won’t matter if the drug they are pushing is inefficient or less effective than another. They can use the rebate values to their gain and retain some of the revenue for themselves.

If the PBM retains a portion of rebates or other Pharma revenue streams, they have a financial incentive to steer members toward inefficient products.

Solution: Identify PBM partners that can PROVE they do not retain any Pharma revenue.
The best way to counter this issue is to introduce and work with PBMs who can prove that they have no ulterior motive and can’t benefit from retaining pharma revenue. They should also be mandated to disclose the complete details of rebates that they have received to maintain transparency and show that they aren’t pushing a costlier drug just to enhance profitability.

Problem #4: PBMs can’t be held accountable for any pricing claims

Although PBMs have a major say in how drug pricing is regulated and reimbursement rates are set, they actually have no responsibility when it comes to pricing issues on a claim-by-claim basis. This is because the pricing terms are based on the rolling average results that are released annually, and this gives the PBMs a free hand over setting drug prices.

Solution: Negotiate CLAIM-LEVEL pricing commitments for ALL drugs.
The first thing to be done in this regard is to make people more aware regarding drug pricing, and also make drug pricing information and claim level data easily accessible, so that PBMs are required to set pricing according to the claim level, and not by a price variability that they choose on their own. This would go a long way towards ensuring transparency and also eliminating price manipulation by PBMs.

Another thing to be done to mitigate this issue is to have PBMs negotiate pricing based on the claim levels for every drug, rather than having them alter the price based on the rolling average. This way, they will also be held accountable for overpriced drugs. The best part, these types of PBMs can easily validate pricing at any time. There's no need to wait until after year-end.

Problem #5: PBMs make use of exclusions to manipulate pricing terms

If you've negotiated a PBM deal you know the devil is always in the details. A usual tactic by most PBMs in negotiations is the use of exclusion language to lift any liability they may have in terms of reconciled claims, and this allows them to get away with overpricing and revenue retention. Moreover, it also causes common people to suffer, as they have to buy overpriced drugs for their health, and their claims aren’t also addressed properly.

Solution: Restructure pricing terms to minimize or eliminate PBM gameplay.
Usually, PBMs offer a per-brand-claim rebate guarantee, which reduces the liability on their end and causes people to suffer. What needs to be done is to make it mandatory for PBMs to offer rebates on a member-to-member basis, and also set the definitions for what a ‘member’ actually is. There can be several exclusions in this regard, but it would certainly require PBMs to have more responsibility when it comes to rebate guarantees.

These are the most common problems that arise in deals that involve pharmacy benefit managers. It is impertinent to mention that while PBMs were introduced as a means to manage the cost of prescription drugs, they have turned into a major stakeholder that can manipulate pricing and push drugs to their advantage.

To ensure that PBMs operate according to an ethical responsibility and also focus on the health of people rather than the profits, it is very important to have stronger negotiations, and this can be done with proper awareness regarding the pricing terms and other information.

If you are looking for a PBM that offers full transparency, get in touch with us today!