Pharmacy Benefits Uncut

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Definitions isn’t typically the first word that comes to mind when employers list the reasons for their skyrocketing drug spend. But if you’re like many other employers struggling with the ever-increasing cost of drugs it may have something to do with how your PBM uses definitions against you.

Today let’s take a look at some of the ways your PBM might be manipulating definitions to create ambiguity and exert control over your plan in an effort to keep your drug prices and their profits moving northward every year.

The problem starts with the fact that there are very few if any universally agreed upon definitions in the employer-sponsored pharmacy benefits world. And your PBM takes advantage of this by using opaque contract language and broad definitions that are subject to various interpretations to obscure your ability to figure out exactly what you’re paying for your drugs and how your money is flowing between you, it, and the various other entities in the pharmacy benefits space such as drug manufacturers, TPAs, GPOs, pharmacies.

Definitions of PBM Revenue Sources

Rebates have become a dirty word in the pharmacy benefits industry recently, particularly in light of the recent FTC settlement with Express Scripts. More and more employers are starting to realize rebates drive drug prices up not down and are used as leverage to hold employers hostage to their PBM. But don’t worry, PBMs forced to abandon rebates will promptly replace them with other revenue sources. Things like administrative fees, formulary review fees, data-access fees, mail-order and specialty pharmacy fees, as well as revenue retained from spread pricing to name a few. This video by Dr Eric Bricker does a great job of explaining the bait and switch tactics used by PBMs when it comes to protecting their profits, which is exactly why these terms need to be clearly defined in your PBM contract using unambiguous language that allows you to trace how your PBM is making money and hold it accountable. Strict, auditable contract definitions can go a long way to eliminating PBM revenue sources that are unfairly driving up your drug costs.

Definitions of Drug Pricing Terminology

As you probably know, PBMs can be very slippery when it comes to drug pricing. Here again, they often get away with it because they control definitions related to how drugs are priced in your contract. Terms like net cost, guaranteed savings, rebate pass-through, discount, usual and customary pricing, just to name a few, can be defined ambiguously in your PBM contract to prevent you as the plan fiduciary from knowing the actual prices you’re paying for individual drugs and fulfilling your legal duty to ensure these prices are reasonable. Again it’s imperative that these terms are firmly defined in your PBM contract so that you can trace where your pharmacy benefit dollars are going and reign in any spend that doesn’t provide value for you and your plan members.

Also, as an increased number of drugs (infusion therapies, biologics) are being reimbursed through your medical benefit, be sure these definitions apply to this aspect of your plan too. Just as there’s a complicated web of pricing transactions associated with your pharmacy benefit, this same web exists in your medical benefit and so the same rules should be in place.

Definitions of Drug Categories

Categorizing drugs is yet another method PBMs use to boost their profits. Because there is no industry-standard definition of what a specialty drug is, PBMs have considerable leeway in deciding which drugs to classify as specialty. Drugs classified as specialty may then be subject to additional contract provisions such as a requirement to use the PBM’s own specialty pharmacy for dispensing or lower rebate or discount guarantees compared to generic drugs. Given the increased profits associated with these types of arrangements, PBMs have an incentive to designate large numbers of drug as specialty. In fact, an FTC study found that from 2017 to 2021, the number of drugs categorized by five different PBMs as specialty drugs increased steadily and this increase wasn’t only related to the number of new specialty drugs entering the market but to widely variable PBM definitions of what constitutes a specialty drug with some PBMs categorizing far more drugs as specialty than others.

Again, you need to establish a clear definition of how drugs should be classified and consider working with an independent PBM that doesn’t own retail or mail-order pharmacies to eliminate the issue of prescription steerage.

The Bottom Line

The definitions PBMs use in their employer contracts can have an outsize impact on what you and your plan member pay for drugs. Moreover, definitions for commonly used terms often vary widely between PBMs, making it difficult for you to compare their proposals and pricing during your PBM procurement process.

But understanding the PBM definitions game puts you in a position to close this loophole. There are several ways you can do this including by providing PBMs participating in your RPF process with a glossary of definitions that they must adhere to. Alternatively, consider providing candidate PBMs with a template contract that they must red line as part of their submission so you can see exactly what changes they’re proposing to your definitions and directly compare what each PBM is offering.

Taking steps to ensure the definitions in your contract are working for you and your members rather than your PBM is worth the time and effort as it’ll almost certainly yield a financial windfall for your plan.

That's all for this week.

See you in two weeks,

Nina

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Pharmacy Benefits Uncut is produced by Healthcare Decision Making, a consultancy that helps small and medium sized employers optimize their pharmacy benefits plan. We offer a comprehensive range of services focused on three areas: PBM procurement, ongoing management of your pharmacy benefits plan, and self-policing and oversight of your pharmacy spend. To learn more about how Healthcare Decision Making can help you, email Nina Lathia at nina.lathia@healthcaredecisionmaking.com