A group with an annual pharmacy spend of $3.5 million decided to build their own formulary and asked their PBM if they could administer it. “Yes, of course” they said, “But our fees will go up.”
“Really?” we thought. We were under the belief that the current contract was a pass-through with no spread pricing, plus all rebates accrued to the benefit of the plan. “You get 100% of all pharmacy rebates” the client was assured.
The PBM provided a proposal based on the new formulary. Their administration fees went up but their contract terms appeared to provide better pricing.
Curious, we asked for a meeting to discuss. We asked eight questions:
1 – PLAN SPONSOR: You have just offered a new contract with seemingly better reimbursement rates tied to AWP. There is no indication what your MAC pricing is. What percentage of total Rx claims in the last 12 months were based on MAC pricing?
ANSWER: 86%.
2 – PLAN SPONSOR: Will you provide MAC pricing and guarantee those for 12 months?
ANSWER: Crickets
3 – PLAN SPONSOR: You have represented that your contract is a “pass through” contract. In other words what we pay for drugs is the same amount you pay the pharmacy thereby eliminating spread pricing. Since you are now offering us a different AWP reimbursement schedule, does that mean you have re-negotiated all 60,000+ pharmacy agreements to reflect the new reimbursement rates?
ANSWER: Crickets
4 – PLAN SPONSOR: Who is your aggregator and who owns it?
ANSWER: Our aggregator is (REDACTED) and we own it, its a subsidiary of our PBM.
5 – PLAN SPONSOR: You have represented that we get 100% of all rebates. Is that still true?
ANSWER: Yes
6 – PLAN SPONSOR: Ok, when the aggregator you own receives rebates from the various manufacturers do they pass 100% of those rebates on to you?
ANSWER: Crickets
7 – PLAN SPONSOR: As you know we have removed specialty drugs from the formulary. which were formerly only available through your own specialty pharmacy. Now you say you need to increase your management fees by 211% because you have taken a “significant financial hit.” How is that possible if your contract is a pass-through contract?
ANSWER: Crickets
8 – PLAN SPONSOR: You say that with the change in our formulary by removing specialty drugs you are increasing AWP reimbursement which will offset some of this increase. You have also represented this formulary change will result in the doubling of our rebates next year. I’m not sure I understand that. Could you explain please?
ANSWER: Intelligible followed by crickets.
I watched in real time the complete destruction of a long time relationship based on trust. Once trust is lost it’s over. (BLT – A good business relationship is based on three things – I must Believe you, Like you and Trust you)
WATSON: Let’s see now. I want to make sure I understand. This PBM sets secret, arbitrary reimbursement rates the client can’t see nor audit on 86% of their $3.5 million spend. There is no spread pricing but when you change your formulary they suffer “a significant financial hit.” And, they don’t pay back 100% of the rebates because they funnel some of it through a subsidiary they own. Lastly, on the remaining 14% of plan spend they apply AWP pricing with better reimbursement rates under the new offer. What do retail pharmacies get in return?
HOLMS: My dear Watson, splendid deduction! PBMs are infinitely stranger than anything which the mind of man could invent.
