PBM contract questions for CFOs

Pass-through and spread pricing

Pass-through pricing means the plan pays what the pharmacy was paid for the ingredient, plus a dispensing fee and a disclosed administration fee. You should be able to tie a claim to that pharmacy cost.

Spread pricing means the pharmacy benefit manager charges the plan a higher amount than it pays the pharmacy and keeps the difference. That spread can sit inside a number labeled “discount” or “plan cost.” If the claim file does not show both the plan charge and the pharmacy payment, you cannot see it.

Ask which retail, mail, and specialty channels use pass-through, and which still use spread. A contract can mix them. The administrator choice, carve-in or carve-out, is on how to choose a TPA.

What counts as a rebate

“100% of rebates” is only as wide as the definition of rebate.

Manufacturer payments show up under more than one name:

• Rebate. The amount the contract actually passes through.
• Administrative fee. A manufacturer payment the contract may exclude from “rebate.”
• Price protection. A payment when a drug’s price rises past a threshold. Some contracts keep it, or pass through only part of it, because they do not call it a rebate.

Ask for a single definition that covers every manufacturer-derived dollar, paid to anyone in the arrangement, and for 100% of that amount to the plan. Ask how often it is paid, whether it is estimated and then trued up, and whether you lose the true-up if you leave mid-year.

A guarantee measured in dollars per prescription can still hold while the definition excludes the larger payments. Read the definition, not the percentage on the cover page.

Specialty drugs, channels, and dispensaries

The contract decides which drugs are specialty. Common hooks are a dollar threshold per prescription, special handling, or a limited distribution list the pharmacy benefit manager maintains. If the manager can add drugs to that list, more spend moves into the channel it controls.

Specialty dispensary language matters. Some contracts require those drugs to be filled at a pharmacy or dispensary the manager owns or prefers, including mail. Ask:

• Is that channel mandatory, or may a local pharmacy or a hospital outpatient pharmacy fill the same drug?
• How is the price at the required dispensary set, relative to other in-network pharmacies?
• Can the plan carve specialty out, or change the channel, without terminating the whole pharmacy contract?

Specialty is often where the spread, the rebate exclusion, and the site-of-care rules stack. Treat the definition as a pricing term.

AWP discount guarantees and MAC lists

Average wholesale price, or AWP, is a published benchmark, not the price the pharmacy paid. Contracts often guarantee a discount off AWP for brands and a different discount for generics. The guarantee is usually measured in aggregate, over a year, with exclusions.

Maximum allowable cost, or MAC, is the price list for many generics. The manager maintains it. Shifting a drug from one MAC list to another, or changing the MAC price, can make an AWP discount guarantee look intact while the plan pays more on the drugs people actually fill.

Ask:

• Which drugs, channels, and supplies are excluded from the guarantee? Specialty, compounds, and limited-distribution drugs are the usual gaps.
• How many MAC lists exist, who can change them, and how often you can see the list that applied to your claims?
• Is the guarantee reconciled in dollars you can check against the claim file, and what is paid if the manager misses it?
• Are 340B or other special pharmacy purchases excluded in a way that pulls cheap claims out and leaves expensive ones in?

A discount off a benchmark you cannot tie to a claim is a slogan. Claim-level verification rights, below, are how you test it.

Gag clause attestation and RxDC access

The Consolidated Appropriations Act prohibits a group health plan from agreeing to a gag clause that blocks the plan, or a business associate, from seeing cost and quality information. That includes provider-specific cost data and de-identified claims and encounter data. The annual filing is the gag clause prohibition compliance attestation, or GCPCA, submitted to CMS. CMS says each later attestation is due by December 31. The instructions are on the CMS GCPCA page.

A pharmacy contract that refuses claim-level data, or that bars you from sharing that data with an independent reviewer, is the arrangement the attestation is about. Do not accept a clause that trades data access for a deeper discount.

RxDC is the separate prescription drug data collection. Plans report spending, premiums, and drug costs, including rebates, to CMS on the agency’s calendar. The pharmacy benefit manager often prepares the files. The plan fiduciary is still the one CMS holds to the filing. Ask for:

• The data layout your plan needs, not only a letter that says the filing was made.
• Access to the files submitted for your plan, and the right to correct them.
• A bar on contract language that would block that access. That is the same problem as a gag clause.

The CMS RxDC page is the primary instruction set.

Early termination and data portability

Read the exit before you accept the term. Ask:

• How many days of notice, and what early termination fee applies if you leave for pricing rather than for breach?
• Do accumulator balances, prior authorization approvals, and open specialty shipments transfer, and in what file format?
• Who pays for the historical claim extract, and how many years do you receive?
• When is the rebate true-up paid if you leave before year end, and does a termination forfeit it?
• Can the next pharmacy vendor start from your file, or does the contract call the history confidential to the outgoing manager?

A contract that holds the claim history is a contract that sets the next price. Portability is part of the cost.

Claim-level verification rights

The plan needs the right to check the contract against claims. Use these words in the agreement: claim-level verification rights, independent claim review, and contract verification.

The review compares what the plan paid with the pricing term, the MAC list in force that day, and the rebate definition, on a sample of claims or on claims above a threshold the plan sets. An independent reviewer the plan chooses should be allowed to do it, under a confidentiality agreement, without the manager picking the only firm that may look.

The clause should state who pays, how many days the manager has to produce the claim file and the MAC lists, and what is repaid if contract verification finds an overcharge. It should survive termination for at least the run-out and the rebate true-up.

That right is separate from the CFO’s monthly report. The monthly report is totals. Verification is the claim.

Whether pharmacy is carved in or carved out, and whether the medical plan is self funded at all, starts on level funded vs fully insured. Pay is carrier commission, often set in the rates the carrier files with the state. Every dollar paid on the contract is disclosed in writing, in dollars and per employee, before the plan goes through, for the current plan and every option quoted. Call (808) 358-1477 or email aloha@mattragudo.com.

What is the difference between pass-through and spread pricing?

Pass-through means the plan pays the amount the pharmacy benefit manager paid the pharmacy, plus a disclosed administration fee. Spread pricing means the plan is charged one amount and the pharmacy is paid a lower amount. The pharmacy benefit manager keeps the difference. The spread does not always appear on the claim.

Why does the definition of rebate matter if the contract says 100% pass-through?

Manufacturer revenue can be labeled a rebate, an administrative fee, or price protection. If the contract passes through only amounts it calls rebates, the other labels can stay with the pharmacy benefit manager. Ask for every manufacturer-derived dollar, under every name, and for the definition in the contract rather than in a summary.

What should a specialty drug definition spell out?

Which drugs are specialty, by dollar threshold, handling, or limited distribution, and which pharmacies may fill them. Some contracts require a dispensary the pharmacy benefit manager owns or prefers. Ask whether that channel is mandatory, how its price compares with other pharmacies, and whether you can carve the channel out.

What is the gag clause attestation, and what is RxDC?

The Consolidated Appropriations Act prohibits group health plan agreements that gag the plan from seeing or sharing cost and quality information, including de-identified claims. Each year the plan attests to CMS on the gag clause prohibition compliance attestation. RxDC is the separate prescription drug data collection those plans report to CMS. The pharmacy benefit manager often holds the files. The plan is still responsible, so the contract should give you the data and a copy of what was filed in the plan’s name.

What verification rights should the contract give the plan?

Claim-level verification rights: the plan, or an independent reviewer it chooses, can compare what the plan paid with the contract price, the maximum allowable cost list, and the rebate terms. Call it contract verification or an independent claim review. The contract should say who pays for the review, how fast the claim file is produced, and what happens when the review finds a miss. It should also say you can take the file if you leave.

I built and sold a health insurance agency: grew it to 60 agents in about 3 years, then sold it. Licensed insurance agent since 2014: Texas license 2501238, NPN 17369817.