June 17, 2020

PBM Transparency Pitfalls and How to Avoid Them

Are you getting the most from your transparent PBM contract? We take a look at two pitfalls you'll want to avoid.

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For many years now, small and midsize Pharmacy Benefit Managers (PBMs) have marketed against the large PBMs by offering a transparent contract for a low administrative fee.  The contract is “transparent” due to the fact that the PBM pays the pharmacy the same amount that the plan sponsor pays the PBM. In addition, the PBM will pass back all rebates and manufacturer revenues to the plan sponsor that it receives. When the PBM negotiates a better price with the pharmacy, the plan sponsor takes full advantage of that negotiation. Thus, with a transparent deal, the PBM is working for the plan sponsor and not against them.

As a plan sponsor, there two main PBM pitfalls you’ll want to avoid, even if you have a transparent contract.

Pitfall #1: Not all transparent contracts are equal.

Just because a PBM offers a transparent contract does not mean that it is equal with all other PBM contracts. A small PBM might not be able to negotiate the same discount as another. The PBM might also be renting the pharmacy network from a larger PBM who must be paid. This too, will impact your bottom line.  Also, the pharmacies your members are using may be priced higher than others in the network.  A PBM may not be able to negotiate as good of discounts with the national chain pharmacies.

Pitfall #2: 30-day supply medications may not be saving you money.

With a transparent contract, there is a usually a significant difference in price between a 30-day supply and a 90-day supply, especially on generics. Pharmacies want to move product and will usually agree to deeper discounts with a PBM for a 90-day supply. With a transparent contract, plan sponsors reap all the benefits of those deeper discounts. Does your PBM have better rates for a 90-day supply? More importantly, are your members filling their maintenance medications three months at a time? In many cases, 90-day supply discounts at a retail pharmacy are as good or better than mail order.

In order to avoid these pitfalls, plan sponsors should consider taking the following steps:

1) Limit the number of pharmacies in your network.

Unlike a traditional PBM contract where you have fixed rates across all pharmacies, a price for a medication will vary depending on what pharmacy fills it. Traditionally, warehouse, grocery and discount stores have better rates with the PBMs. With all the pharmacies that are available, there is no reason to have higher priced pharmacies in your network.  If your PBM does not offer a smaller network, consider raising the copay for the large, national chain pharmacies.

2) Encourage your members to get 90-day supplies at their retail pharmacies, when possible.

Some PBMs may be able to require 90-day fills at a retail pharmacy for maintenance medications. It is beneficial to incentivize your members through the co-pay, but make sure that your 90-day co-pay is not set too low where you lose money when a member moves from a 30-day to a 90-day fill.

It’s important to ensure that your transparent contract and PBM work for you. Because the PBM is paid per prescription or member, you should be in control of your benefit design and pharmacy network. A transparent contract is the best option, but it needs to be managed effectively so that your company and employees can get the most out of it.


Related resource: Ask These 8 Questions of Your Pharmacy Benefit Manager