Did You Read The Contract? Then Why Did You Sign It?

It’s been our experience over the years most Plan Sponsors never read their TPA administrative agreements. As an example, some years ago a client approved their ASO agreement without first allowing us to review it as was required under our management agreement. They screwed themselves and I had to tell them they screwed themselves. Sugar coating has never been our style.

This was a county government whose county judge happened to be an attorney.

“Judge, did you read the contract before you signed it?” I asked during a Commissioners Court meeting. “Yes, of course I did!” huffed the Judge. “Then why did you sign it?” I replied.

Texas A&M University’s group health plan is administered by Blue Cross of Texas. A review of their partially redacted ASO Agreement is an interesting read.

Here are a few tidbits to further your post graduate studies of the American health care delivery system:


Claim Administrator has the right to reduce the Plan’s payment to a Network Provider by the amount necessary to recover Another Plan’s Overpayment to the same Network Provider and to remit the recovered amount to the Other Plan.


Audit samples will be limited to no more than three hundred (300) Claims……….Notwithstanding anything in this Agreement to the contrary, in no event will Claim Administrator be obligated to reprocess Claims or reimburse Employer for alleged errors based upon audit sample extrapolation methodologies or inferred errors in a population of Claim Payments………………..All such audits shall be subject to Claim Administrator’s then current external audit policy and procedures………..The audit period will be limited to the current Agreement year and the immediately preceding Agreement year. No more than one (1) audit shall be conducted during a twelve (12) consecutive-month period………….Employer agrees that Claim Administrator will recover Overpayments in accordance with its Recovery Process and that Employer has no separate or independent right to recover any Provider Overpayment from Claim Administrator, Providers, or Another Plan.


Employer understands that Claim Administrator may receive such discounts during the term of the Agreement. Neither Employer nor Covered Persons hereunder are entitled to receive any portion of any such discounts except as such items may be indirectly or directly reflected in the service charges specified in the Agreement……………….Prime (PBM) retains the difference between its acquisition cost and the negotiated prices as its fee for the various administrative services provided as part of the mail-order pharmacy and/or specialty pharmacy program. Claim Administrator pays a fee to Prime for pharmacy benefit services, which may be included in the Administrative Charge charged by Claim Administrator to Employer. A portion of Prime’s PBM fees are tied to certain performance standards, including, but not limited to, Claims processing, customer service response, and mail-order processing.


The Pharmacy Benefit Manager(s) (“PBM”) negotiates rebate contracts with pharmaceutical manufacturers and has agreed to provide rebates made available pursuant to such contracts to Claim Administrator under the PBM’s agreement with Claim Administrator. Claim Administrator may also negotiate rebate contracts with pharmaceutical manufacturers. This negotiation is conducted by the PBM (or Claim Administrator, as applicable) for the benefit of Claim Administrator and not for the benefit of Employer or Covered Persons………………Claim Administrator hereby informs Employer and all Covered Persons that it owns a significant portion of the equity of Prime………………Employer acknowledges that it has negotiated for the specific Rebate Credit included as part of this Agreement and that it and its group health plan have no right to, or legal interest in, any portion of the rebates provided by the PBM or such manufacturers to Claim Administrator and consents to Claim Administrator’s retention of all such rebates. Rebate Credits shall not continue after termination of the prescription drug program……………………As of the Effective Date, the maximum that a PBM has disclosed to Claim Administrator that the PBM will receive from any pharmaceutical manufacturer for manufacturer administrative fees is five and one-half percent (5.5%) of the Wholesale Acquisition Cost (“WAC”)

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