Should an employer design a benefit plan around anticipated rebate payments? Expecting PBMs to use the most efficient strategy to protect the best financial interest of the employer self-funded pharmacy benefit program is like playing the lottery as a retirement savings strategy. PBMs should not be considered fiduciaries in that they have no financial responsibility to manage the plan. Instead it is better to consider them the ATMs of the pharmacy transaction, and for each the PBM extracts a piece of the dollar as it passes through the process of AWP, ASP, discounts, rates, MAC list, rebates, and brand and generic definitions. Granted, PBMs provide a service, and by all rights, deserve a fee for that service. The question is: What is a fair payment for that service?The answer should be that the plan and PBM have come to an agreement on terms, definitions, discounts, rates and shared rebates through a signed contract. But is having a signed contract the answer to nailing down all the potential variables impacting program performance within the sphere of PBM influence? The real answer is: let the buyer beware.
Accepting a PBM’s formulary is one of those potential slippery financial slopes into the unknown, yet adoption of the formulary is not an uncommon requirement for rebate payment eligibility in most agreements. What formularies are supposed to be and what they actually yield in program savings may be very different. Formularies are presented as a list of drugs that have been deemed safe, effective, and of best value by a panel of clinicians, pharmacists, and experts based upon the “evidence.” The value part of the process is where the end user should be leery. Is it the value of the formulary to the PBM or to the plan? It is fair to assume that rebate opportunity aligns with the formulary positioning negotiated with Pharmaceutical Manufacturers by the PBM. Remember, the PBM is not a fiduciary.
PBMs sign proprietary agreements with drug manufactures to obtain rebates on brand drugs. Should we be concerned? Well, proprietary agreement means that no information on the agreement can be shared with outside interests. PBM rebate agreements with manufacturers can involve multiple components. Rebates to the PBM can be partly or all of administration fee, formulary access fee, market share fee, and discounts. Not all components are disclosed or passed along to PBM clients. So, we are now sharing what part of the rebate agreement? Who knows? Call it one of the unknowns.
Historically, pharmaceutical manufacturers have pursued proprietary rebate agreements with Pharmacy Benefit Managers to secure formulary positioning advantage. When market share movement can no longer be tied to formulary placement, rebates will erode as a negotiation tool. Will those rebate agreements disappear? Products are being excluded from the PBM formulary in growing numbers year by year. Express Scripts excluded 48 in 2014 and have increased that to 65 in the upcoming 2015 year. CVS Caremark had 72 on its exclusion list for 2014 and is up to 95 for 2015. In 2012 CVS Caremark had 24 drugs removed from its standard national formulary.
The plan must be in a position to understand the influence a PBM’s Formulary Management processes and corresponding rebate practices have on their program. There are strategies that can be implemented to protect oneself from the mystifying list of unknowns in a PBM relationship: be vigilant. APC can help educate, monitor, and manage the process for the plan’s success moving forward.
