Managed Care - January 2009 - (Page 32)

is not attributable to the clients’ drug purchases. For example, if a PBM/manufacturer contract states that the manufacturer must pay a specified amount of rebates (say $10 million) to the PBM if the PBM increases the manufacturer’s market share in a therapeutic drug category by an identified percentage (say 1 percent), the rebates will arguably not be attributable to any client. Furthermore, if a PBM enters into contracts with wholesalers, distributors, or other third parties, even if the PBM labels the money rebates, it will arguably be allowed to retain all such monies because they were received from an entity other than a pharmaceutical manufacturer. Rebate transparency Not surprisingly, litigation filed against PBMs during the past decade has alleged that they are engaged in all the rebate labeling games described above. Moreover, lawyers allege that PBMs’ games are enabling them to deprive their clients of billions of dollars in potential savings. When my consulting firm initially describes PBMS’ rebate labeling games to our new clients, they nearly always ask us the same question: “Given that PBMs can endlessly invent new labels for rebates, how can we ever keep them from retaining all money that they characterize with a new label?” Fortunately, the answer is not difficult. We have created a new phrase — financial benefits — that we include in all PBM contracts that we draft for clients. We define the phrase to include “all financial benefits the PBM receives, including but not limited to all: rebates, discounts, credits, fees, grants, chargebacks, or other payments or financial benefits of any kind.” By inserting the phrase “including but not limited to,” we ensure that PBMs cannot invent a label for rebates that will exclude them. By adding language that explicitly states that all financial benefits are covered by our definition, regardless of who provides those benefits, we ensure that our clients receive their pro rata share of all financial benefits, including those that PBMs receive from drug manufacturers, wholesalers, distributors, and all other third parties. Not surprisingly, PBMs not only engage in rebate labeling games, but they also try to ensure that their clients are unable to detect the extent to which they are doing so. Thus, notwithstanding that most PBMs claim their contracts are transparent, almost all PBM/client contracts limit clients’ ability to audit rebates. Many PBMs accomplish this task by inserting a single word into their contracts: proprietary. When clients conduct audits, PBMs point to that word and claim that it precludes the clients and their auditors from having access to most rebate information because it is confidential. Other PBMs insert a single sentence into their contracts to obtain the same result. For example, here’s the boilerplate used by one large PBM to limit clients’ access to information: “Audit materials and documentation provided by PBM will be limited to client-specific information.” Since rebates that a PBM relabels are not passed through to clients, the rebates are not client-specific, and a PBM can therefore refuse to provide any information about them. Achieving real disclosure When our firm creates requests for proposals (RFPs) inviting PBMs to compete for our clients’ business, we draft an entirely different form of contract and demand that PBM contestants accept core elements of our contracts. Before our clients select a finalist, we insist that all semifinalists execute our contract, binding themselves to all that they have promised to provide during our process. Our contract’s audit provisions include several paragraphs related to rebates and all other financial benefits, all as defined in our contracts. Those terms make clear that PBMs must provide all documents and data related in any way to any financial benefits, including but not limited to all contracts with manufacturers and other third parties, all PBM invoices to third parties, all documents reflecting third party payments to the PBM, and so on. Our contracts also contain detailed requirements identifying the information that PBMs must provide to enable our clients to verify the accuracy of their calculations of our clients’ pro rata share of financial benefits. Tellingly, when we conduct an RFP process for our clients, many PBMs refuse to accept our audit terms and drop out, even though they have repeatedly claimed to be transparent and consulting companies have certified them as transparent. Apparently, it is a lot easier for a PBM to claim that it 32 MANAGED CARE / JANUARY 2009

Table of Contents Feed for the Digital Edition of Managed Care - January 2009

Managed Care - January 2009 Editor's Memo Contents Legislation & Regulation News and Commentary Medication Management Compensation Monitor Health Care's Disruptive Innovations Q&A With Clayton Christensen 'Disruption' May Be Plans' Best Bet Avoid the PBM Rebate Trap HealthPartners Puts Diabetes on Notice Formulary Files Plan Watch Tomorrow's Medicine Ad Index Outlook Unmet Needs in the Management of Plaque Psoriasis Impact of RSV: Implications for Managed Care

Managed Care - January 2009

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