How to pare health plan Rx costs: with pharmacy coverage costs continuing to spiral upward, an attorney and consultant specializing in cost-containment strategies offers advice about how to lower plan expenses.
For more than two decades, soaring soaring: see flight; glider.
Sport of flying a glider or sailplane. The craft is towed behind a powered airplane to an altitude of about 2,000 ft (600 m) and then released. prescription coverage costs have plagued every corporate, union and government health plan in America. However, every health plan can decrease its prescription costs, and do so in only a few months, by implementing the following simple steps.
Step 1: Scrutinize scru·ti·nize
tr.v. scru·ti·nized, scru·ti·niz·ing, scru·ti·niz·es
To examine or observe with great care; inspect critically.
scru and Rewrite re·write
v. re·wrote , re·writ·ten , re·writ·ing, re·writes
1. To write again, especially in a different or improved form; revise.
2. Your Contract
The major determinant determinant, a polynomial expression that is inherent in the entries of a square matrix. The size n of the square matrix, as determined from the number of entries in any row or column, is called the order of the determinant. of a health plan's prescription coverage costs is its contract with a Pharmacy Benefit Management A Pharmacy Benefit Manager (PBM) is a third party administrator of prescription drug programs. They are primarily responsible for processing and paying prescription drug claims. (PBM PBM - play by mail. See play by electronic mail. ) company. Unfortunately, virtually all PBM contracts are filled with "loopholes" that continuously drive up health plans' costs. Moreover, while most PBMs claim to be providing "pass-through pricing" and "fully transparent" contract contracts, almost none actually do so.
By drafting a real "pass-through pricing" contract--and including "transparency (1) The quality of being able to see through a material. The terms transparency and translucency are often used synonymously; however, transparent would technically mean "seeing through clear glass," while translucent would mean "seeing through frosted glass." See alpha blending. " requirements--a health plan can dramatically lower its prescription coverage costs. By using the leverage of a request for proposal (RFP (Request For Proposal) A document that invites a vendor to submit a bid for hardware, software and/or services. It may provide a general or very detailed specification of the system.
1. (business) RFP - Request for Proposal.
2. ) to demand that new contract terms be accepted by a PBM, your health plan will obtain the contract terms it has drafted.
Here's how to accomplish both goals.
Step 2: Require REAL Pass-Through Pricing
Real pass-through pricing requires a PBM to invoice An itemized statement or written account of goods sent to a purchaser or consignee by a vendor that indicates the quantity and price of each piece of merchandise shipped.
A consular invoice is one used in foreign trade. its client with the exact cost it is paying, for each drug dispensed dis·pense
v. dis·pensed, dis·pens·ing, dis·pens·es
1. To deal out in parts or portions; distribute. See Synonyms at distribute.
2. To prepare and give out (medicines).
3. , meaning each retail, mail and specialty drug dispensed. Real pass-through pricing also requires a PBM to pass through to its client all rebates and discounts (and other fees) the PBM obtains from all drug manufacturers and other third parties.
Unfortunately, while virtually all PBMs claim to provide pass-through pricing, their contracts incorporate none of the above terms. Instead, their standardized standardized
pertaining to data that have been submitted to standardization procedures.
standardized morbidity rate
see morbidity rate.
standardized mortality rate
see mortality rate. contracts typically contain pass-through pricing terms for retail pharmacy pharmacy, art of compounding and dispensing drugs and medication. The term is also applied to an establishment used for such purposes. Until modern times medication was prepared and dispensed by the physician himself. In the 18th cent. drugs, but allow PBMs to continue to impose "spread pricing" for every mail and specialty drug dispensed. As a result, PBMs purchase their mail and specialty drugs at relatively low costs, but invoice their clients far more, thus making large profit "spreads."
Moreover, by increasing their "spreads" on mail and specialty drugs beyond what they previously earned, PBMs re-take whatever profits they may have relinquished re·lin·quish
tr.v. re·lin·quished, re·lin·quish·ing, re·lin·quish·es
1. To retire from; give up or abandon.
2. To put aside or desist from (something practiced, professed, or intended).
3. via their agreement to provide pass-through retail pricing. Similarly, PBMs write their contracts with their clients to pass through all "rebates" they may earn from drug manufacturers.
However, PBMs avoid passing through to their clients most "financial benefits" they receive, simply by re-labeling "rebates" with a different name in their contracts with manufacturers. For example, PBMs characterize "rebates" as "discounts" or "administrative fees" or "health management fees," thereby retaining the monies they would otherwise have been required to pass through.
Thus, to lower their costs--and increase their savings--every health plan must rewrite its PBM contract to ensure real pass-through pricing, requiring the PBM: 1) to invoice the health plan for every retail, mail and specialty drug using the manager's actual costs; and 2) to pass through to the health plan all "financial benefits" received from all drug manufacturers and other third parties.
Moreover, health plans must clearly state in their PBM contracts that the PBM's only profits will be based on a flat, per employee per month (PEPM PEPM Partial Evaluation and Semantics-based Program Manipulation
PEPM Per Employee Per Month
PEPM Program in Economic Policy Management
PEPM Pharma Engineering Project Management ) administrative fee.
Step 3: Require Real Transparency
Real "transparency" requires that a PBM provide every document and all data necessary to enable a health plan to verify that the manager is satisfying its contract obligations. Such transparency also requires a PBM to allow a complete audit conducted by an auditor of your choice.
However, almost all PBMs currently write language into their contracts stating that certain documents and data are "proprietary" (meaning they will not have to disclose the documents and data to your health plan). Moreover, almost all PBMs include contract language stating that they must "mutually approve" your choice of auditor--giving them the opportunity to veto veto [Lat.,=I forbid], power of one functionary (e.g., the president) of a government, or of one member of a group or coalition, to block the operation of laws or agreements passed or entered into by the other functionaries or members.
In the U.S. the very auditors most likely to protect health plans' interests.
Furthermore, unbeknownst to health plans, almost all PBMs require health plans' auditors to sign a PBM-drafted "confidentiality agreement" before audits begin. Such agreements typically preclude pre·clude
tr.v. pre·clud·ed, pre·clud·ing, pre·cludes
1. To make impossible, as by action taken in advance; prevent. See Synonyms at prevent.
2. auditors from sharing certain information with their own clients--health plans like yours.
Thus, PBMs' claims of "transparency" are eviscerated by a few contract words--"proprietary," "mutual approval" and "confidentiality agreement"--that may appear benign to health plans and their lawyers, but are anything but benign in reality.
To achieve real transparency, health plans must eliminate all such terms. They must also draft and demand contracts that: 1) list every document and all data that a PBM must provide to enable the health plan to verify that all contract terms are being satisfied; and 2) make clear that the health plan has an unfettered right to choose its own auditor.
Health plans should also attach their own form of auditor confidentiality agreement to the PBM contract as a contract exhibit to protect the confidentiality of PBM information, but allow health plan auditors to disclose all audit information to their clients.
In short, if a health plan wants a truly transparent contract, it must transform a contract that contains a few deadly terms like "proprietary." This revised contract must contain a lengthy laundry list laundry list A popular term for a long list of Sx, diseases, or etiologies that share something in common–eg, differential diagnosis of acute abdomen of all information that must be disclosed to the health plan and its auditor, and the confidentiality requirements for all such disclosure.
Step 4: Require Real 'Financial Guarantees'
Given a health plan's new demand for real pass-through pricing, it must also demand that the PBM provide as good pass-through pricing as is available in the marketplace. To do so, the plan must write financial guarantees into the contract, requiring the PBM to warrant that its pass-through prices for each type of drug (retail brand, retail generic, mail brand and mail generic, etc.) will provide certain aggregate discounts at the very least.
Most PBM contracts already contain certain "financial guarantees"; however, you cannot allow those financial guarantees to suffice suf·fice
v. suf·ficed, suf·fic·ing, suf·fic·es
1. To meet present needs or requirements; be sufficient: These rations will suffice until next week. . Why? Because in virtually all PBM contracts, they are drafted so as to be essentially unenforceable Adj. 1. unenforceable - not enforceable; not capable of being brought about by compulsion; "an unenforceable law"; "unenforceable reforms"
enforceable - capable of being enforced .
By way of example only, virtually all PBM contracts include a "generic savings guarantee" warranting a specific "average AWP AWP Awaiting Parts (military equipment status)
AWP Average Wholesale Price
AWP Annual Work Plan
AWP Associated Writing Programs
AWP Amusement with Prizes
AWP Any Willing Provider
AWP Aerial Work Platform discount" on all generic drugs generic drug, a drug sold or prescribed under the nonproprietary name of its active ingredients or under a generally descriptive name rather than under a brand or trade name. for which the PBM sets "MACs" (maximum allowable costs). Unfortunately, almost all such contracts fail to indicate how many generic drugs the PBM must price for in the MAC.
As a result, if a PBM creates a MAC for only 500 generic drugs, the PBM's "generic savings guarantee" will only cover those 500 drugs; all other generic drugs will be "outside" the guarantee's coverage. Thus, every health plan must rewrite its generic savings guarantee--as well as all other contract guarantees that are ineffective and unenforceable--in order to dramatically shrink its costs.
Similarly, to gain control over spiraling specialty drug costs, every health plan contract should contain an exhibit list of all (500-plus) specialty drugs, and a mandatory minimum discount for each drug listed.
By writing and demanding enforceable and auditable financial guarantees, every health plan will not only lower its costs, but it will also enable itself to evaluate and compare each PBM's guaranteed, minimum "pass-through prices," thereby ensuring that the health plan has obtained the best pass-through pricing available.
Conduct a New Form of PBM RFP To Obtain Airtight air·tight
1. Impermeable by air.
2. Having no weak points; sound: an airtight excuse.
1. Contract Terms
The contract terms described above are unlikely to be obtained from any PBM simply by asking for them. In fact, experience shows that "airtight" contract terms can only be obtained if they are extracted from a PBM during a PBM RFP in which managers are competing for a health plan's business.
Unfortunately, most health plans have historically conducted RFPs using outside consulting firms Noun 1. consulting firm - a firm of experts providing professional advice to an organization for a fee
business firm, firm, house - the members of a business organization that owns or operates one or more establishments; "he worked for a , and those consulting firms--lacking lawyers--have failed to even discuss specific contract terms before finishing a RFP for their clients. Instead, most consulting firms use RFPs merely to ask PBMs a series of questions, and rely on benefit managers' unverifiable and nonbinding answers in the selection process.
These facts were borne out by a poll taken during a recent Web seminar on PBM RFPs. More than 80 percent of attendees who had conducted RFPs indicated in the survey that they had never negotiated any PBM contract terms until after their RFP was concluded.
The PBM RFP a health plan conducts should be entirely different, and should use the leverage of the RFP to extract the contract terms needed to pare your costs.
Before the RFP begins, retain a consulting firm with lawyers knowledgeable about PBM contracting, and have those lawyers draft an entirely different form of contract, eliminating or modifying all substantive terms that are against your health plan's interests. Include "blank lines (Print.) a vacant space of the breadth of a line, on a printed page; a line of quadrats.
See also: Blank " in your contract for each PBM contestant to identify its PEPM fee and each financial guarantee.
When you issue your RFP documents, attach your contract to those documents, and require every PBM contestant to mark up the contract, identifying every change the contestant will want to have made, if it is selected as the finalist. Warn all contestants that any PBM that significantly alters the letter or spirit of your contract will be eliminated from the RFP process. Then, require every contestant to execute its contract markup (text) markup - In computerised document preparation, a method of adding information to the text indicating the logical components of a document, or instructions for layout of the text on the page or other information which can be interpreted by some automatic system. , binding itself to the contract terms it has written.
After each PBM contestant returns its RFP, eliminate those managers that significantly changed the proposed contract, and have your consulting firm use the remainder of the RFP process to ensure your contract will remain airtight, with the best available PEPM fee and guarantees. Do so by having your consultant repeatedly negotiate with each PBM contestant, forcing all contestants to compete against the best terms offered by rivals.
Before a finalist is selected and announced, make sure all contract changes that you have extracted during negotiations have been written into a binding contract. Then require each PBM contestant to execute its contract and a final binding certification stating it will honor its executed contract, without any further changes, should it be selected as the finalist.
Now you can evaluate each PBM's binding contract terms, and select a finalist based on the binding pricing and guarantees it has offered--sending your health plan is on its way to realizing far lower costs and far better performance.
Health Plans CAN Change the Marketplace
Numerous health plans and consulting firms currently take the position that PBMs will not provide decent contract terms, and "nothing can be done" about that. If you accept this view from your own staff--or a consulting firm--your plan will be destined des·tine
tr.v. des·tined, des·tin·ing, des·tines
1. To determine beforehand; preordain: a foolish scheme destined to fail; a film destined to become a classic.
2. to execute another flawed flaw 1
1. An imperfection, often concealed, that impairs soundness: a flaw in the crystal that caused it to shatter. See Synonyms at blemish.
2. PBM contract that will result in ever-higher prescription coverage costs.
But it doesn't have to be this way. While almost no PBM contracts in the marketplace are airtight--and almost all PBM contracts are stuffed with loopholes that are driving up clients' costs--relatively small corporations and unions have used PBM RFPs to draft and negotiate contracts that have dramatically reduced their costs. In theory, at least, all health plans can obtain the same result.
Moreover, as soon as numerous health plans insist upon airtight contract terms during RFPs--and health plans thereby create a competitive marketplace requiring PBMs to win business by providing ever-lower PEPM administrative fees, and ever-better financial and performance guarantees--the entire prescription marketplace will improve.
In short, health plans have the power to not only materially lower their own costs, but to transform the marketplace into a competitive one that health plans and not PBMs control. Every health plan should exercise that power, and bring about the change that the prescription coverage arena so desperately needs.
RELATED ARTICLE: TAKEAWAYS
* The major determinant of a health plan's prescription coverage costs is its contract with a Pharmacy Benefit Management (PBM) company. Unfortunately, virtually all PBM contracts are filled with "loopholes" that continuously drive up health plan costs.
* By drafting a real "pass-through pricing" contract--and including "transparency" requirements--a health plan can dramatically lower its prescription coverage costs.
* If a health plan wants a truly transparent contract, it must transform a contract that contains a few onerous on·er·ous
1. Troublesome or oppressive; burdensome. See Synonyms at burdensome.
2. Law Entailing obligations that exceed advantages. terms like "proprietary," which can keep information even from the plan's own outside auditor.
* When numerous health plans insist upon airtight contract terms during RFPs and the marketplace becomes more competitive, pharmacy costs should become more manageable for everyone.
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business firm, firm, house - the members of a business organization that owns or operates one or more establishments; "he worked for a that assists corporations, unions and government entities in rewriting re·write
v. re·wrote , re·writ·ten , re·writ·ing, re·writes
1. To write again, especially in a different or improved form; revise.
2. their PBM contracts and conducting successful PBM RFPs. For further information, contact Pharmacy Benefit Consultants at 973.975.0900, or go to www.PharmacyBenefitConsultants.com.