The complexity of pharmacy benefits manager (PBM) contracts can make it difficult for employers to know exactly where their plan dollars are going and whether their PBM is delivering the full value promised in the contract. This lack of transparency can lead to significant financial losses from contractual underperformance on key guarantees, including discounts and rebates.
An annual financial reconciliation provides a critical check on PBM performance, identifying gaps between what was promised and what was actually delivered. It holds PBMs accountable to their contractual commitments and helps ensure every pharmacy benefit dollar is working as intended, whether a plan is in the first year of a multiyear PBM contract or approaching renewal.
What Does an Annual Financial Reconciliation Examine?
An annual financial reconciliation provides a detailed review of a PBM contract to confirm that the promised financial terms are being delivered, down to individual claims. A robust annual financial reconciliation examines key areas, including:
- Claims Audits: Review pharmacy claims to confirm drug pricing aligns with contract terms and members are being charged appropriately.
- Rebate Audits: Verify that all eligible rebates, administrative fees and performance guarantees have been calculated correctly and fully paid or credited to the plan.
- Discount and Guarantee Audits: Confirm the PBM met contracted pricing guarantees, including AWP discounts by channel, specialty/LDD guarantees and brand/generic discounts, throughout the measurement period.
- Service-level Performance: Evaluate and document the PBM’s performance against contractual commitments.
Reviewing these areas helps employers ensure contract performance remains aligned with market standards, allowing them to manage and reduce pharmacy costs without waiting for their next contract renewal.
Why an Independent Expert is Essential
With complex PBM contracts, it takes more than a standard review to determine whether a plan is receiving everything it was promised. An independent pharmacy benefits expert provides the specialized expertise, analysis and oversight needed to uncover gaps and errors, including:
- Deep Data Analysis: PBMs often bundle claims data and rebate reporting in ways that are difficult to untangle without expert analysis. An independent expert can analyze underlying data to identify discrepancies and missed opportunities.
- Dedicated Expertise and Resources: Annual reconciliations require dedicated time, pharmacy expertise, a detailed understanding of contractual financial terms and the ability to benchmark against contract terms.
- Ongoing Market Insight: Formularies, drug pricing, rebate arrangements and utilization patterns constantly change as new therapies enter the market. Independent oversight helps ensure a plan’s contract performance remains competitive as the market shifts.
- Contract Expertise: Even seemingly transparent PBM contracts contain complex definitions and terms. Innovative Rx Strategies ensures more than 60 proprietary terms and definitions are incorporated into contracts, reflecting the terms agreed upon and negotiated in the RFP process.
The Bottom Line
An annual reconciliation is more than a financial review. It’s a critical component of effective pharmacy benefits management, allowing employers to identify and recover dollars that may otherwise be lost to missed rebates, pricing discrepancies and other instances of PBM contractual underperformance. It also creates a documented record of checks and balances that validates contract performance and supports an employer’s fiduciary responsibilities. By providing validated claims and financial data, an annual reconciliation can strengthen forecasting and guide strategies for future plan years.
Do you know exactly where your plan dollars are going?
Without an annual financial reconciliation, your pharmacy benefits plan could be leaving money on the table.
Connect with the Innovative Rx Strategies team for expert pharmacy benefits guidance and insights.