Revisiting a PBM Contract for a Municipality

Benefits Case Study

As pharmaceutical companies conduct new research in the development of prescription drugs, the demand for certain drugs amongst the insured population changes. Shifts in demand are often met with increases in the prices of certain drugs, and many employers with self-funded plans are seeing that the amount they spend annually on prescription coverage is increasing at a faster rate than the remainder of their annual medical spending. Additionally, the continued expansion of specialty medications in the marketplace creates an additional contributor to cost increases. Although the utilization of these drugs is often essential to the health of the insured population, members of self-funded group medical plans do not need to fall victim to the pricing whims of drug companies. Employers who provide medical and prescription drug benefits for their employees using a self-funded model can revisit and negotiate contracts with their pharmacy benefit managers (PBM’s) to ensure that their employees have access to the drugs they need at a reasonable cost. The larger the employer, the more important it is that these contracts are evaluated on a regular basis; as every percentage in cost shift can amount to thousands, or sometimes millions, of dollars coming out of the funding of the plan or pockets of the employees.

In one such case, Summit began working with a municipality in Oklahoma whose contract with their pharmacy benefit manager had not been revisited in nearly eight years. This was far too much time between contract evaluations, and the change in employees’ demand for certain prescriptions drugs were not being met with negotiations for new discounts that would save money for the plan and its members. With a population of roughly 1300 that varied immensely in demographics and health status, neglecting to renegotiate their pharmacy contract was resulting in the plan’s annual pharmacy spending increasing at a much faster rate than their regular medical spending. In the eight years since the current contract was first established, prescription drug spending on the plan had increased from 10% of total medical spending in year one, to 20-30% by years seven and eight. This substantial increase made it clear to Summit that these contracts needed to be revisited immediately.

Summit’s Solution

The client signed a consulting agreement for Prescription Drug Services with Summit, who then conducted a full prescription audit and pricing evaluation from competing PBM’s. The results revealed an opportunity to significantly improve pricing, rebates, and administrative fees.

After another thorough review of the group’s current PBM contract and utilization, Summit negotiated a new contract with the current PBM.  In addition to improved pricing, rebates, and administrative fees, the new contract included performance guarantees and an annual independent audit to ensure contractual pricing is adhered on each prescription. By keeping the same PBM, the employees had no formulary, benefit or pharmacy disruption.

The results of this contract renegotiation were felt immediately by the group after the first year, creating a savings of approximately $1.3 million in pharmacy spending for the plan and its members. Although these vast savings after the first year were a clear victory, Summit has since continued to revisit the contract to ensure that it stays up-to-date with the demands of the group. The group is expected to generate a similar volume of savings in the second and third years of their new contract. As a result, it is also expected that the rate change on the group’s stop-loss policy will also be much lower than in previous years. The new contract has had a tremendously positive impact on the group’s budget, and given them room to enhance their benefit offerings in the future due to the significant savings they have created on their pharmacy spending.

Dan Oliver

Executive Vice President, Benefits

These Results Are For Illustrative Purposes Only And Should Not Be Deemed A Representation Of Future Results. Circumstances, Solutions, And/Or Results Are Based On Specific Facts Tied To Unique Client Situations. Favorable Results Cannot Be Guaranteed Even In A Similar Scenario. Each Specific Set Of Circumstances Will Differ Depending On Client Needs And Profile. Actual Results May Be More Or May Be Less Than Those Shown. Past Performance Does Not Guarantee Future Results. This Assessment Is That Of The Writer, And Not The Recommendations Or Responsibility Of Cetera Advisor Networks LLC Or Its Representatives. The Solutions Presented In This Scenario Are Being Offered Through Summit.

Dan Oliver is not affiliated with Cetera Advisor Networks LLC.