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Drug Prices and Other Reasons You Should be Auditing Your PBM


If you are like most employers, when you contract with a Pharmacy Benefit Management company (PBM), you assume that it delivers on getting you the best drug prices and other discounts  you are entitled to. After all, PBMs are the experts on drug prices and have leverage with drug manufacturers to negotiate the best drug prices on behalf of their employer clients – right?


It’s virtually impossible for most employers to know whether the PBM has accurately delivered on providing the best overall drug prices agreed to. That’s because PBM formulas for calculating total drug prices have to take into account manufacturer rebates, pharmacy discounts, and many other factors, including benefit design. These factors, in turn, have many variables, caveats, and moving parts that constantly change — affecting your total drug prices.

The process of calculating actual drug prices is complex and fraught with the potential for error.

Your PBM may provide detailed financial statements and reports on a quarterly basis showing how your drug prices were calculated. But it is rare for an employer or general healthcare consultants to have the expertise to identify possible errors or miscalculations. These can end up costing the employer significantly.


For this reason, it is a best practice to hire an experienced, independent third-party reviewer with extensive experience in PBM pricing analysis to periodically do a thorough audit of your PBM. Your company will benefit from such audits in at least 7 different ways.


1. You will avoid leaving money on the table.

PBM contracts contain many performance and other monetary guarantees designed to help employers get the best overall drug prices. Your contract is also full of many caveats that affect pricing at different times during the contract period. PBM analysts do their best to apply these formulas correctly. But they can, and often do, make mistakes. In fact, significant mistakes can occur almost 50% of the time — frequently costing the employer tens of thousands of dollars on drug prices. Doing an audit will help you identify and recoup money you are entitled to.


2. You will identify potential errors early so you can avoid paying out money later.

The PBM analysts sometimes make mistakes on drug prices in the employer’s favor. But if the PBM later determines that it mistakenly overpaid rebates to the employer’s account, it may invoice the employer for the amount it determines it overpaid. So don’t wait for this unexpected turn of events to happen. An audit will help you catch these errors earlier so you won’t be on the hook later for large payback amounts.


3. You will increase your odds of catching and recovering money related fraud and abuse.

PBMs put mechanisms in place to try to ensure that the employer is not paying for drugs that should not be covered under the benefit design. They also have safeguards to deter dispensing retail pharmacies from trying to fraudulently game the system in their favor when they bill. But the PBM can miss things or be slow to react to trends in the market. For example, a dispensing pharmacy may “compound” two low-cost drugs and then tack on a huge markup on the total drug dispensing invoice. Wide scale abuses of this kind that occurred a few years ago in some markets went largely under the PBMs’ radar. Doing audits can help catch and prevent this kind of systemic abuse and save money that would otherwise be misspent.


4. You will be better able to protect the health and safety of your employees and their dependents.

PBMs also have mechanisms in place designed to help prevent inappropriate or potentially dangerous drug use that poses patient safety issues. But again, PBMs can’t catch everything. For example, a PBM may not always flag or catch a situation where a patient has been taking a controlled substance for too long. This in turn means the PBM is unable to help prevent that patient from developing a drug addiction or spot potential drug abuse. By doing thorough audits, you will be better able to proactively identify and prevent some of these issues from occurring.


5. You will be better able to protect your members financially.

Given changes in laws and regulations at the state and federal levels, it is not uncommon for PBMs to make mistakes and sometimes charge members copays for certain prescriptions that members should not have to pay for out of pocket. These can include items such as birth control or smoking cessation products. Again, an audit can help determine if the PBM may be accidentally overcharging your members — and  help you get those monies returned.


6. You will be better able to determine if your company and your members are getting the levels of service the PBM agreed to provide.

Most PBM contracts contain performance guarantees that go beyond just getting the best drug prices. A PBM may be required under contractual performance guarantees to provide high levels of service or pay a financial penalty. Performance may be tied to such things as having a certain percentage of claims processed without errors. Or they may be linked 
to member call wait times, members’ ability to get issues resolved on the first call, or the promptness and accuracy of member mail order shipments. Conducting audits enables you to determine whether the PBM is doing a good job — and if not, what money you are entitled to recover.


7. You will be in a stronger position to negotiate your next PBM contract more effectively. 

Finally, because doing audits will help you pinpoint any potential problem areas, this will enable you to be more savvy and effective in re-negotiating drug prices and other terms in your future PBM contracts.