Managed Care - April 2008 - (Page 33) indicate how many generic drugs the PBM must create a MAC for. Therefore, if a PBM creates a MAC for only 500 generic drugs, the PBM’s “generic savings guarantee” will only cover those 500 drugs, and all other generic drugs will be outside the guarantee’s coverage and without any guarantee. Moreover, since the definition of MAC is poorly written (and purposefully vague) in almost every PBM contract, PBMs can change the number of drugs with a MAC and their actual MAC pricing whenever they want to do so. By continually changing both variables, PBMs make it virtually impossible for insurers to audit “generic savings guarantees.” In short, PBMs’ “generic savings guarantees” are anything but real guarantees since PBMs can easily manipulate the number of drugs covered under the guarantees and their MAC pricing, and PBM clients are extremely unlikely to be able to audit the guarantees. Thus, every MCO must rewrite its generic savings guarantees, as well as all other contract guarantees that are ineffective and/or unenforceable. By writing airtight guarantees, every MCO will not only decrease its costs but will also enable itself to evaluate and compare each PBM’s pass-through pricing, because enforceable guarantees will reflect minimum discounts the PBM must provide for each type of drug (retail brand, retail generic, mail brand, mail generic, and so forth), while simultaneously providing pass-through pricing. Thus, airtight guarantees enable every MCO to verify that the pass-through pricing it has obtained from its PBM is as good as is available in the marketplace. STEP 5 Require real performance guarantees Almost all PBM contracts also contain many “performance guarantees” that purportedly ensure that PBMs dispense drugs in a timely and accurate manner. However, nearly all PBM “performance guarantees” are missing core terms needed to ensure their success because the guarantees do not identify an agreed audit methodology for the insurer’s auditor to implement; they don’t require PBMs to provide the requisite information to enable an audit to take place; and they don’t include sufficient penalties to motivate PBMs to satisfy the guarantees. For example, almost every PBM/client contract contains mail pharmacy “dispensing accuracy guarantees” stating that the PBM will dispense the correct drug, at the correct dosage level, with the correct number of pills per bottle — with a 99.9999 percent accuracy rate. However, insurers almost never audit those guarantees — and instead rely on their PBMs to do so — because the contract does not spell out an accepted audit methodology, and insurers do not have access to the necessary data to conduct their own audits. Not surprisingly, since PBM contracts leave the PBM fox to guard the chicken coop, PBMs routinely report that they have satisfied their guarantees in content-less letters stating that they have done so. Insurers can do nothing but accept PBMs’ representations, even if clients and covered members are routinely complaining that drugs are being dispensed inaccurately, since insurers cannot see the necessary data to prove otherwise. By rewriting each performance guarantee to include an agreed audit methodology that a thirdparty auditor can implement and a list of all data and documents that must be produced to enable the specified audit methodology to be implemented, insurers will be able to verify that performance guarantees are being met. By rewriting each performance guarantee to include a strong penalty that must be paid if PBMs are discovered to be violating the guarantee, insurers will create the necessary incentives to make PBMs honor their guarantees. Put simply, a PBM that is confronted with the loss of 10 percent of its administrative fees for breach of a guarantee will be far more likely to satisfy the guarantee than a PBM that is required to pay a $25,000 penalty, which is the typical penalty in most insurers’ PBM contracts. STEP 6 Tighten up all other contract terms Virtually all PBM/insurer contracts contain numerous other terms that make no sense, given that insurers are spending hundreds of millions of dollars annually on prescription drugs. By way of example only, almost all PBM contracts incorporate three-year terms, with limited or no rights for insurers to terminate the contract. Those agreements become less competitive and APRIL 2008 / MANAGED CARE 33
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