Healthcare costs are still on the rise, and pharmacy is a significant driver of that cost. With Medical inflation still in place but flattening, pharmacy inflation on the other hand is at its HIGHEST point in history!
Many sponsors of prescription drug benefit programs have operated on blind faith for too long. They have depended on their pharmacy benefit manager (PBM) to deliver safe and effective prescription drug coverage to their plan members while helping to reduce costs. The problem occurs when the plan sponsor relies on their PBM to tell them how they are doing. This is something akin to the ‘fox guarding the hen house’. To make matters worse, prescription benefit programs and PBM business practices remain some of the most opaque operations in health care (see our Industry News page for a number of articles on this important subject!). It is almost impossible for a plan sponsor to fulfill their fiduciary obligations without some type of independent, third-party oversight. This is where outside auditing and monitoring comes into play. Let’s take a look at the reasons why:
- PBM contracts are extremely difficult to validate on your own
The PBM Services Agreement is filled with plan definitions that dictate how terms are identified and opens up the possibility for varied interpretations. PBMs contract separately with the plan sponsor and the pharmacy providers, thus creating ‘spread pricing’. Contracts also forbid any criticism from the Rx providers, sponsors or auditors, and the terminology used is extremely ambiguous and ill-defined (MAC, Single Source Generics, AWP, Claims Exclusions, etc.)
PBMs prefer language that is vague and provides wiggle-room, meaning that a definition can be molded to comply with the business practice being deployed, usually benefitting the PBM. For example, even very basic definitions such ‘Generic Drugs’ where Plan Sponsors are surprised to learn that drugs that should qualify as a generic (thus obtaining a greater discount) can be re-characterized as a brand (receiving a smaller discount), all at the discretion of the PBM.
- Maximize savings to the Plan
The above-mentioned ‘wiggle-room’ also gives the PBM the flexibility to define pricing and rebates. For example when the PBM re-classifies manufacturers’ incentives into something other than a rebate or pricing discount. These lost savings accrue to the PBM’s shareholders rather than to the plan!
- ERISA requirements
The health and welfare plan that includes the pharmacy benefit, may require an independent audit as part of the financial reporting to the Department of Labor. It’s IMPOSSIBLE for the plan’s financial audit to be completed accurately if the PBM’s performance is not also validated.
- Fiduciary obligation
PBMs fight furiously to exclude themselves from being identified as a fiduciary in the vast majority of PBM contracts. As a result, the designated fiduciaries have an extra burden to make sure that the plan is performing.
- Formulary Development and Plan Design
Formularies are designed for PBM profitability not health outcomes. PBMs maintain brand medications on formulary when much less expensive Therapeutic alternatives are available and ‘rebates’ do not offset the price difference.
Clients can reduce their pharmacy claim costs by 10-25% or more per year, and routinely receive double-digit returns on investment, by performing a comprehensive Pharmacy Claims Audit/Recovery and On-Going Monitoring project which requires very little time resource on behalf of the client. From a Retrospective Audit and Recovery perspective, clients can expect to recover on average 3% of their total annual spend for every year that can be audited. Most PBM agreements’ audit provisions allow between 24 and 36 month retrospective audits, with some provisions allowing audits back “to the date the contract was executed”. Additionally, an audit can identify whether plan members are paying the correct copays and whether drugs are being adjudicated properly. Via our On-Going Monitoring program, Relevant works with our clients to monitor the performance of the PBM on a monthly and quarterly basis to ensure compliance and identify recoveries and other areas of savings in near real-time – why continue to fund your PBM with overpayments on an annual basis?! Via On-Going Monitoring, we will ensure that you keep funds within your organization for the operation, success and growth of your business!
Click here to learn more about our On-Going Monitoring program.