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6 Things Every Pharmacy Benefits Management Contract Should Contain Before You Sign


Evaluating and selecting a Pharmacy Benefits Management (PBM) vendor is a very important decision that will significantly impact how much your company spends on prescription drugs each year. It will also impact the levels of service and access to medications that your employees and members receive so they can stay healthy and productive. But as most organizations know firsthand, understanding what is in the PBM contract can be one of the biggest challenges.


A key reason for the challenges is the sheer complexity of the business model and lack of transparency that has long been part of the PBM world. Getting a good 360-degree view of how a PBM company operates, what it does, how it determines pricing, and what you should expect can feel daunting. PBMs know this, so they don’t expect you to ask that certain protections and clarifications be included in the contract language. Unless, of course, you know specifically what to ask for.


Here are 6 key elements you should always make sure you include in your Pharmacy Benefits Management contracts and understand fully  before signing on the dotted line.


1. Specific definitions and clarity of key terms. 

It’s important that you get clear definitions on just about every term referred to in your contract as many of these terms are subject to broad interpretation by the PBM vendor. Even terminology that may appear to be obvious on the surface often isn’t. For example, what exactly is a “generic” drug? Does that include single-source generic drugs (which are more expensive than multiple- source generics)? Or do exclusive generics represent a separate category? How is “brand” drug defined? These terms can have different meanings, interpretations, and applications, all of which will have a direct impact on pricing and discounts for which your organization is eligible. So be clear from the start.


2. Guaranteed drug discounts by dispensing location, rather than collectively across all locations combined.

Separate dispensing locations should include retail pharmacy, mail order, and specialty pharmaceuticals. You should negotiate guaranteed discounts or savings for each dispensing location, rather than a blended discount or savings across all locations combined. This will work to your advantage financially. 


3. The right to audit your PBM vendor using an independent, outside expert.

PBM vendors promise a lot in terms of guaranteed pricing, performance, and service delivery. But don’t just take their word for it that they are doing what they agreed to. Make sure your contract has a clause allowing you to hire an outside, independent auditor to periodically review how the PBM vendor is doing. In many cases, auditors will find errors that result in the vendor having to pay back significant sums of money.


4. Termination clause with specific provisions.

You should always have the right to cancel a contract should you not be satisfied with your PBM vendor. Be clear on what kinds of fees you will be charged should you terminate the contract early. Make sure there is specific language in the contract outlining what closing your account would look like in terms of timing, transfer of information to a new vendor, and other operational considerations. Depending on the size of your account or number of lives, you can often negotiate a 90-day out clause without cause after the first year.


5. Clarity on any fees or penalties regarding Prior Authorization Use and Mandatory 90-Day Supplies.

In some markets, PBM firms may want to charge or penalize you if you request that specific Prior Authorization (PA) flags be used on certain high-cost medications, including specialty drugs. They may also impose penalties if you don’t require your employees to use mail service or 90-day supply dispensing at select retail locations. Be sure you know what you want your company and for your employees and members — and know what you may  have to negotiate on — so there are no unpleasant surprises later.


6. Have solid "guaranteed reconciliation" language in your contract.

Make sure there is a clause in the contract requiring that your PBM vendor regularly monitor and report on the actual discounts that they have achieved on your behalf. Essentially it is a performance guarantee. If certain discounts aren’t achieved as projected, then any shortfalls should be returned to the employer.