Pharmacy Benefit Managers (PBMs) have become very good at pricing their services. So much so, they have practically driven the market and how consultants and plan sponsors see the PBM world.
They know that most financial analysis outputs solely to review the main pricing buckets and channels, e.g. pharmacy discounts and dispensing fees, rebates, and administrative fees. Adjusting appropriately for caveats, exclusions, definitions, unique formularies, etc. are commonly not part of the methodology or only partially accounted for in the process.
PBMs know how difficult it is to get to the heart of what the true numbers should reflect. This plays right into the PBM’s hands and for those PBMs that offer traditional pricing models, this process bodes very well for that type of model.
Traditional models are all about showing high discounts and high rebate rates along with guarantees that are considered “ceiling” guarantees, which means a client can count on obtaining those guarantees, but nothing above those guarantees.
All of these values will look better on a standard spreadsheeting exercise than a 100% Pass-Through model. This is because 100% Pass-Through models do not tend to use as many caveats or play the same types of number games with exclusions, definitions, etc. In addition, their guarantees tend to be considered the “floor” or “minimum guarantees.” This means the client would experience all up-side above and beyond the guarantees listed, but most consultants and plan sponsors will see that as “soft” savings and not account for those additional possible savings.
Traditional PBMs have become very good at displaying what numbers they think the client wants to see and where. These PBMs can move claims into different buckets to reach certain numbers as needed for the bid process.
It is not all doom and gloom if you choose a Traditional model PBM, you just need to be diligent about how you evaluate those types of PBMs and ensure your account for all definitions, caveats, exclusions, etc. These PBMs usually require more diligence in reviewing the contracts to be sure to identify possible concerns. Ultimately, these PBMs should be routinely monitored by a third-party entity to ensure PBMs are adhering to contractual obligations.