By drafting a new contract to close various loopholes, employers can get the transparency they deserve from their pharmacy benefit manager, experts say.

"Just about every contract that exists with a PBM is stuffed with loopholes" in the definitions, pricing and rebates, said Linda Cahn, a lawyer and president of Pharmacy Benefits Consultants.

For example, the definition of paid claims might include a loophole that incorrectly allows the plan to be billed for claims that are rejected or reversed by the pharmacist, Cahn told attendees at the Benefits New York conference in March.

Another loophole might exist in the definition of average wholesale price. The PBM should apply the average wholesale price of the cheaper bulk purchases that employers typically make, not the average wholesale price of a 30-day supply of pills. In addition, it should be the AWP of the drug that was actually dispensed, not the AWP of a repackaged version of that product, Cahn noted.

PBMs "engage in a labeling game and therefore hold on to most of the money they are collecting," Cahn said.

Likewise, PBMs' financial and performance guarantees are often written in a way that they are not enforceable, so employers should be careful to address those issues effectively in the contract, Cahn said.

The contract should specify that generic drug guarantees apply to all generic drugs, not just a small list of generic drugs selected by the PBM, Cahn pointed out. "You don't want PBMs auditing their own guarantees, which is what is happening now," she said.

In addition, the contract should list the types of information that the PBM is required to submit to the employer's auditor because, otherwise, the PBM will not release critical information, making the audit useless, Cahn noted.

"Until we force them to be able to be audited, they have no incentive to clean this up," she asserted.

After the new contract is written and the loopholes are closed, draft a request for proposal and attach the new contract. That's how to get the contract terms you want, Cahn said.

Case in point

The DC 37 Health and Security Plan, which covers some New York City workers, took this advice and is happy with the results so far.

"We saved a huge amount of money" by closing the loopholes in the contract, said Audrey Browne, director of regulatory compliance and contract procurement for the DC 37 Health and Security Plan.

The plan got its pharmacy benefit manager to agree to be a fiduciary to the plan, which is an unusual feat. "What that means is our interests are aligned. They're going to look after our money as if it's their money," Browne explained. "You want it to be your contract, not the PBM's contract."

Most of all, the plan wanted transparency in the PBM relationship. "It's a very dirty business. There's so much that you don't see that is going on behind the scenes," Browne told attendees at the Benefits New York conference.

Reducing pharmacy costs was also a priority. "Those [drug inflation] numbers took our breath away," Browne recalled.

Broker involvement

Cahn says there are thousands of RFPs conducted every year by brokers on behalf of employers, and very few employers are requiring their brokers to disclose any information about their relationship to PBMs. She feels it's time for employers to wake up.

A recently proposed Labor Department regulation could clarify that fuzzy area of what makes a contract "reasonable." If implemented, the regulation would require benefit advisers and PBMs to reveal to employers all streams of revenue the adviser receives related to the client/PBM relationship and any possible conflicts of interest related to the plan.

A broker is hired by an employer to look out for the employer's best interest and choose the best PBM, but many times brokers are accepting additional commissions, either flat commissions for the entire plan or a fee per prescription, to give certain PBMs the business, Cahn notes.

"Conflicts [of interest] remain rampant in the consulting industry," she observes. "In fact, only a few weeks ago, my firm received a call from a PBM offering to pay my firm as much as $3 a prescription if my firm would only bring business' to the PBM that had contacted us."

Cahn sees such negotiations as abusive practices and thinks disclosure from a broker is a crucial element of an employer's fiduciary duty when setting up a plan. But there are varying levels of disclosure. Cahn suggests that knowing about this particular PBM/adviser relationship is not enough. An employer should ask for information about any times the adviser has brokered PBM contracts.

While a broker may say he is acting purely in a consultative role for this case, he may have received commissions from PBMs in the past, and that may still skew his ability to make a fair decision on the employer's behalf.

Also, advisers may say they work as a broker for several PBMs, so the conflict of interest is eliminated. But if one PBM is offering $3 per prescription for the business, a second is offering $2 per prescription and a third is offering $1 per prescription, the contract is going to the $3 offer, says Cahn.

That's one more loophole to try to close to secure an ideal PBM contract.

EBA Managing Editor Molly Bernhart contributed to this article.