Managed Care - January 2009 - (Page 33)

is transparent than it is for a PBM to execute a contract requiring real transparency. Our RFP experience demonstrates a significant reality of the current PBM marketplace: PBMs’ executed contract terms — not their representations — are what matters. PBM. PBM will make such payments in accordance with the amounts set forth in the table below [for retail, 90-day retail, and mail order]. Other rebate antics Many other problems related to PBMs’ payment of rebates are embedded in most PBM/client contracts. For example, most PBM/client contracts contain language like the following, stating that clients will forfeit all rebates if certain events occur: “All rebate payments will immediately cease accruing to client, and client hereby expressly authorizes PBM to retain any and all rebate payments that have accrued to such date, upon the occurrence of any of the following: (i) breach by client of any obligations set forth in this agreement; (ii) termination of this agreement by either party; (iii) PBM’s exercise of its right to terminate any clinical program services; and (iv) any change in the pharmaceutical industry practices or marketplace conditions that may affect the payment of rebates.” Note that an inconsequential client breach such as a delay in paying an invoice by one day could result in a client forfeiting all rebates. Note also that several of the “events” listed are not within a client’s control. Finally, note that most PBMs pass through rebates approximately 9 to 18 months after clients have earned them, meaning rebate forfeitures could result in a significant loss of money to clients. Many PBMs also contract to provide per-script rebate guarantees such as $7 per retail prescription and $15 per mail prescription, but include language that allows them to change or even eliminate the guaranteed payments if marketplace conditions occur that prevent them from doing so. Many PBM/client contracts also contain contradictory rebate language, like the next paragraph in which a PBM purports on the one hand to pass through 100 percent of all rebates while on the other hand limiting its rebate obligation to a specified amount per prescription: PBM will provide client with 100 percent of the rebates PBM receives. PBM will make payments to client on a per-net-paid-claim basis, regardless of the amount of rebates received by Most PBM/client contracts also explicitly state that PBMs may retain all rebates received in connection with specialty drugs. For example, note the following contradictory language consistently found in one PBM’s contracts claiming what the PBM can do so to ensure that it can provide good discounts to its clients: “Rebates: To provide the steepest discounts possible, 100 percent of specialty rebates will be retained by PBM.” When assembled together, the above rebate provisions stand out as a monument to poor contracting practices. Indeed, when they are illuminated with a spotlight, one has to wonder how anyone could allow such language into a contract. However, most of the cited provisions can be found in most PBM/client contracts, including the contracts of large and small insurance companies, corporations, unions, and even government entities. Accordingly, all such entities must reach at least four conclusions about PBMs and the PBM industry: • PBMs are stuffing client contracts with many provisions that are driving up their clients’ costs, contrary to their clients’ interests. Most consulting firms and lawyers are incapable of detecting and eliminating PBMs’ pernicious contract language and/or not interested in doing so because the consulting firms and lawyers have their own brokerage or other financial relationships with PBMs. Clients must locate a consulting firm — or lawyer — that will end PBMs’ contracting antics, meaning an entity or individual with sufficient knowledge of the PBM industry and sufficient legal skills to draft and negotiate an entirely different form of PBM contract. Clients must also ensure that all entities or individuals representing them will act as fiduciaries and will be free of all conflicts of interest. • • • Ultimately, “a rose by any other name” is still a rose, and a rebate by any other name must still be considered a rebate, even by a PBM. And all PBM clients must see to it that PBMs understand that fact. MC JANUARY 2009 / MANAGED CARE 33

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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