A clear understanding of the standard contract options offered by your client’s pharmacy benefit manager (PBM) can provide valuable insight into what your clients can expect and how the PBM profits from the arrangement. Even for the most experienced consultant with the best intentions, it is critical to conduct a careful analysis – independently of the PBM – before deciding which type of pharmacy pricing arrangement works in your client’s best financial interests.
Traditional Contract: PBMs receive revenue from a variety of sources, including spread pricing, mail order fees, retaining a percentage of the drug rebates, data sales, and other ancillary fees. Traditional contracts typically offer more aggressive performance guarantees because the PBM has more upside.
Pass-Through/Transparent Contract: PBMs have limited sources of revenue, including a flat administration fee, mail order fees, data sales, and other ancillary fees, to name a few. In a pass-through deal, retail discounts and rebates are passed along to plan sponsors in return for higher administrative fees. These contracts offer less aggressive financial guarantees because the PBM is taking on greater financial risk. There are some PBMs that pass-through all discounts in exchange for an extremely high administrative fee.
Both contract types have their pros and cons. Do not assume that pass-through arrangements will save you money!
Explore more pharmacy benefits contracting tips in our free Pharmacy Contract Best Practices e-book.