Managed Care - September 2008 - (Page 34)

of generic savings, it should be obvious what clients must do to eradicate PBMs’ MAC mousetraps. First, clients must entirely eliminate PBMs’ boilerplate MAC definitions and MAC references from contracts. Second, clients must write — and demand — contract pricing formulas that require PBMs to invoice them based on real pass-through pricing, meaning that for every retail and mail generic drug dispensed, the PBM must invoice the client based on the PBM’s actual cost of the drug. Since PBMs are paying for retail generic drugs at average discounts of approximately AWP minus 70 percent — and mail generic drugs at discounts of approximately AWP minus 80 percent or more — it makes no sense to allow any PBM to hide, let alone retain, those discounts. PBMs must be required to pass through all such discounts to your health plan, and to instead make their profits through a single administrative fee per employee per month (PEPM) or per member per month (PMPM). Note that real pass-through pricing requires the PBM to pass through not only its actual costs on every retail drug, but also the PBM’s actual costs on every mail and specialty drug. Otherwise, whatever generic drug savings your health plan obtains from its retail pass-through pricing will be taken back by your PBM when it inflates its profit spreads on mail order and specialty drugs. Note also that almost every PBM that now claims to be providing pass-through or transparent pricing is actually only providing retail pass-through pricing. Third, clients must write — and demand — generic guarantees that include every generic drug dispensed, not just a subset. Moreover, clients must include airtight definitions for brand drugs and generic drugs that preclude PBMs from mis categorizing generic drugs as brands and thereby excluding them from coverage under the generic guarantees. Moreover, clients must explicitly include formulas in their contracts that set forth exactly how damages will be calculated if PBMs breach clients’ all-inclusive generic guarantees. Clients should also write — and demand — contract provisions that preclude PBMs from using their success in exceeding certain guarantees to offset the damages they must pay for breaching other guarantees. Finally, clients must ensure that they have removed all limitation-of-liability provisions that PBMs typically stuff into client contracts. It makes no sense for a client to write — and demand — an airtight PBM contract that requires a PBM to pass through all generic discounts — and includes extremely aggressive generic guarantees — if a PBM can simply violate those contract provisions and incur only limited liability or no liability at all. Eliminate all other contract loopholes Unfortunately, a health plan cannot rest after it has ensured that its contract is without any form of MAC mousetrap. Virtually every PBM/client contract contains many other loopholes that allow PBMs to manipulate contract terms to drive clients’ costs up. Accordingly, if a health plan does not eliminate all of those loopholes as well, a PBM will simply inflate its pricing by way of the other loopholes and take back whatever savings the health plan achieved by eliminating PBMs’ MAC mousetraps. Ultimately, the goal of significantly increasing generic drug savings — and dramatically decreasing prescription coverage costs — is entirely determined by the contract terms that clients obtain. Therefore, clients must stop relying on PBMs’ representations and promises and start writing their own airtight contracts. Moreover, clients must use the RFP (request-for-proposal) process to demand that PBM contestants agree to provide the airtight contract that clients have generated. When clients seize the initiative to force PBMs to provide entirely different contract terms, their MAC mousetraps — and all other PBM contract manipulations — will disappear from the marketplace, and all drug payers will enjoy dramatically lower prescription coverage costs. MC Was this story helpful? We need feedback to help up us prepare the kinds of articles that will help you in your day-to-day work, and to describe the continuing change in and challenges to the health care system. Write to editors@managedcaremag.com 34 MANAGED CARE / SEPTEMBER 2008

Table of Contents Feed for the Digital Edition of Managed Care - September 2008

Managed Care - September 2008 Editor’s Memo Contents Legislation & Regulation News and Commentary Medication Management Compensation Monitor Archimedes Lends Hippocrates a Hand Some Other Predictive Modeling Programs Messing With Medicare Advantage The Trouble With MAC MedPAC’s Suggestions Sound Familiar The Leader in Patient Satisfaction Formulary Files Plan Watch Tomorrow’s Medicine Ad Index Outlook

Managed Care - September 2008

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