Overview

Some employers may dread the thought of negotiating or renegotiating contract terms for Pharmacy Benefit Management (PBM) services. For some, the process simply seems too complex and time-consuming. Or they fear that changing their current PBM to a different vendor will be problematic and fraught with implementation glitches. Other employer groups may shy away because they fear asking for better terms will upset the PBM and make them more difficult to work with.

But these concerns are largely unfounded. The negotiating process for PBM services doesn’t have to be hard or protracted if you keep a few important things in mind. The following tips should help your organization maximize your negotiating leverage for PBM services so you can save time and money.

1. Don't be afraid to ask for better pricing.

As the employer purchaser, it is your right and your fiscal duty to always try to negotiate a better deal for PBM services. Asking for better terms is not going to hurt your relationship with your PBM or the level of PBM services you receive. It will just make you a smarter purchaser. That’s good for your company and your employee beneficiaries.

2. Use the RFP process to your advantage.

PBMs know that many employers are reluctant to change PBMs, so they often offer to renew the contract at terms that are just good enough to keep the client. By issuing an RFP to evaluate multiple vendors, you have a better chance of renewing with your current PBM at a market competitive rate.

3. Don't assume there aren't better options available. There are.

Given the consolidation in the PBM industry, a lot of employers have allowed PBMs to gain the upper hand in negotiations. While it is certainly true that there is less competition to choose from, it is also true that there is very limited new market share for PBMs to gain. Your PBM needs to keep your business. This means they are often willing to make concessions if they think your company is dissatisfied with its PBM services or likely to go out to bid again. They would rather keep you than risk losing you.

4. Avoid three-year and five-year PBM services contracts.

Many employers lock themselves into three- or even five-year deals with their PBM, thinking that guarantees them better prices. And many employers don’t like two-year PBM services contracts because they don’t want the administrative work involved in issuing an RFP every other year. However, the PBM services market and its pricing patterns are changing very fast. Therefore, locking into a three-year or five-year deal means you will likely miss out on better pricing that would otherwise become available. A better option: negotiate a two-year PBM services contract that contains an option for you, the employer, to renew in Year 3 at your discretion. This puts you in control, and makes you better able to capitalize on emerging PBM services market opportunities. This approach also gives you flexibility should other corporate administrative platforms, such as medical carriers or human resources service solutions, require a change or adjustment of priorities.

5. Be wary of PBM market check language in your contracts.

Many employers mistakenly assume that so-called “market check” provisions protect them in the event better pricing for PBM services becomes available after they are already in a PBM contract. But this language almost always favors the PBM. And it puts the onus on the employer to “prove” that the pricing they got is less favorable than what’s going on in the market at large. You always want to have the option of using external consultants to evaluate the market. You can’t prove anything without financials, and if you ask the PBM for numbers, they will generally tell you they can’t share financials they consider proprietary. So be wary of this Catch-22.

6. Don't overlook mail service and specialty drugs as potential levers.

PBMs make a lot more money on prescriptions dispensed through mail service or their preferred pharmacies, compared with the entire retail market. If your employer group’s mail service utilization rate is significantly higher than the national average rate of 15%, you have more negotiating clout. As for specialty drugs, that’s where PBMs often generate high margins as well. Therefore, having an exclusive specialty arrangement through your PBM also gives you more negotiating leverage for demanding better discounts.

7. Don't overlook smaller, up-and-coming PBMs.

The three big PBMs are not the only game in town. If your company has 10,000 or more lives, you will have a lot more leverage if you are willing to contract for PBM services with some of the smaller so-called “next tier” PBMs. For these smaller PBM players, 10,000 lives represents a big account. So they will often be willing to give you better pricing and other favorable service terms, and your employees may see improved account services as well.

8. Be wary of popular terms like "transparency" and "hybrid pricing."

Though multiple pricing options exist in the market, none have a consistent industry definition - not even the concept of "transparent" PBM pricing. As such, terms can be misleading and what appears attractive may in fact be more costly to your plan. Just remember that regardless of the pricing option offered by the PBM, it is ultimately about key contractual details such as full audit rights and the disclosure of PBM financial terms.