February 29, 2024

For self-funded plans, pharmacy benefit contracts serve as the foundation for a transparent, fair and mutually beneficial relationship with their PBM. There are a myriad of important clauses, terms, and conditions. But one aspect stands out for its critical importance: pricing guarantee language.

This component not only defines the financial framework of the agreement but also safeguards the interests of the plan sponsors. So, let’s dive into what PBM pricing guarantees are, their significance and why the right contractual language is vital to ensuring the best possible outcomes for self-funded plans.

Understanding PBM Pricing Guarantees

PBM pricing guarantees are contractual commitments made by PBMs to their clients regarding the cost and pricing structure of prescription drugs. These guarantees can cover a wide range of aspects, including drug pricing, dispensing fees, and rebate amounts.

They provide a financial safeguard for plan sponsors by ensuring it meets certain pricing benchmarks. This creates predictability and stability in the management of pharmacy benefits expenses.

The Importance of Pricing Guarantees

For self-funded plans, which bear the direct cost of healthcare expenses for their members, pricing guarantees are not just important; they are indispensable. These guarantees help in:

  • Budget Predictability: They allow plan sponsors to forecast their pharmacy benefits expenses more accurately, mitigating the risk of unexpected cost surges.
  • Cost Management: By setting pricing benchmarks, these guarantees can help lock in guaranteed rates, directly impacting the bottom line.
  • Transparency and Accountability: They hold PBMs accountable for their pricing models and rebate structures, ensuring that the plan sponsors receive fair market value for the services rendered.

Returning Underperformance Dollars to Self-Funded Plans

One of the key benefits of having robust pricing guarantee language in PBM contracts is the ability to reclaim underperformance dollars. If a PBM fails to meet the guaranteed pricing benchmarks, the contract should stipulate the return of the difference to the self-funded plan.

This not only ensures financial accountability but also aligns the PBM’s performance with the plan sponsor’s fiscal interests, fostering a partnership that prioritizes value.

Beyond Pricing: The Significance of Definitions, Inclusions, and Exclusions

While the pricing offered in a PBM contract is crucial, it does not operate in a vacuum. The efficacy of pricing guarantees heavily depends on the precise definitions, inclusions, exclusions and guarantee language stipulated in the contract.

Without clear definitions, the door is open for misinterpretations that can lead to disputes and financial discrepancies. Inclusions and exclusions specify the scope of the guarantees, detailing what is covered and what isn’t, which is vital in avoiding unexpected costs.

Crafting the Right Contractual Language

The right contractual language is the linchpin in securing the interests of self-funded plans. It should be comprehensive, unambiguous, and tailored to the unique needs of the plan sponsor. This involves:

  • Clear Definitions: Every term related to pricing and rebates should be explicitly defined to avoid ambiguity.
  • Specific Inclusions and Exclusions: The contract must clearly delineate what is included in the pricing guarantees and what is excluded, leaving no room for assumptions.
  • Robust Guarantee Language: The guarantees should be enforceable, with specific metrics and benchmarks that are both attainable and reflective of fair market practices.

While competitive pricing is a significant factor in PBM contracts, it’s the pricing guarantee language that ensures these prices are honored. Consequently, it is a mission-critical component of contract negotiation for self-funded plans. By focusing on the right definitions, inclusions, exclusions and enforceable guarantee language, plan sponsors can ensure that their PBM partnership delivers both value and performance.

Does Your Consultant Have the Right Background?

When it comes to PBM contract negotiation, we cannot overstate the importance of having deep expertise across the pharmacy benefit value chain. Unlike “generalist” consulting firms that simply rely on spreadsheeting numbers to compare pricing, a specialist digs deeper to address core issues in the contract.

Without this insight, contracts may appear financially attractive on the surface but fail to provide real value or protection against market volatility. A pharmacy benefits consultant who combines a focused background in pharmacy benefits with experience throughout the entire industry can go beyond mere numbers, ensuring that contracts are crafted to “stick.”

This provides long-term financial benefits for the plan — guaranteeing that their pricing floor is properly reset, and that it remains that way. This allows plan sponsors and their pharmacy benefits consultant to focus on long-term cost containment strategies.

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