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Evaluating Pharmacy Benefit Managers: 10 Essential Questions for Employers

In recent years, the rising costs associated with pharmacy benefits have become a significant concern for employers. The Business Group on Health predicts that drug costs could see a staggering increase of 12% in 2026, a steep uptick compared to an 8.5% rise in overall healthcare costs. Given that pharmacy expenditures already represent about 25% of total healthcare spending for employers, it's paramount that they scrutinize the pharmacy benefit manager (PBM) they choose.

Renzo Luzzatti, CEO of US-Rx Care, emphasizes the importance of understanding how PBMs operate financially. “Changing PBMs doesn’t automatically align their financial interests with those of the plan,” he states. As businesses continue seeking alternatives, they’re diving into a marketplace of so-called transparent, pass-through models that offer similar promises without the same contractual guarantees.

Key Criteria for Evaluating PBM Contracts

US-Rx Care has developed a framework, utilizing the Nautilus Contract X-Ray analysis tool, to scrutinize PBM agreements. This tool focuses on three key areas: fiduciary conduct, financial integrity, and oversight & control. Employers need to bring these aspects into focus when reviewing a proposed PBM contract.

1. Fiduciary Loyalty Commitment

Does the contract acknowledge the fiduciary responsibilities of the plan sponsor? It's vital that employers are aware of their obligations and that the PBM respects and adheres to these duties.

2. Pass-Through Pricing Integrity

Are manufacturer payments and other valuable benefits transparently passed through to the employer’s plan? The clarity on how funds are allocated is pivotal.

3. Rebate Transparency

Are any rebates and associated payments clearly defined and fully disclosed? Reliable financial transparency is a key indicator of the PBM's integrity.

4. Data Ownership Rights

Does the employer retain complete ownership and unrestricted access to their claims data? This ensures that employers can fully monitor activity and trends.

5. Audit Rights Verification

Are employers allowed to independently audit pricing, rebate terms, and contract performance? Audit rights enable companies to ensure compliance and accountability.

6. Conflict of Interest Management

Does the PBM maintain a neutral stance, avoiding steering prescriptions towards affiliated pharmacies? This is crucial for prioritizing patient welfare over profit.

7. Vendor Rights for Carve-Outs

Does the employer retain the right to utilize alternative pharmacy solutions without facing financial penalties? Flexibility in these arrangements can lead to improved outcomes.

8. Focus on Lowest Net Cost

Are formulary and clinical choices centered on achieving the lowest net costs among available therapies? Prioritizing economic decisions is essential in controlling costs.

9. Clear Termination Options

Can employers terminate or switch to another PBM without facing unfair constraints? Clean exit strategies add essential layers of control for employers.

10. Administrative Fee Transparency

Are administrative fees detailed and predictable? Clear fee structures are crucial for budgetary certainty.

Transparency vs. Fiduciary Responsibility

Luzzatti warns that mere transparency does not equate to fiduciary alignment. Just because a PBM offers extensive data access or avoids conflicts, this doesn’t guarantee they will act solely in the interests of the plan. Fiduciary alignment requires contractual obligations to prioritize the welfare of the plan and its participants.

In a recent contract review using this framework, Luzzatti found concerning gaps where many of the tested provisions failed to meet basic integrity standards, especially regarding rebate management and pricing structures.

The gap between the claim of transparency and the reality of fiduciary responsibility is vast and must be thoroughly assessed through legally binding agreements. Employers are urged to ensure that the PBM they choose genuinely commits to acting in their best interests to avoid potential pitfalls.

Conclusion

The process of selecting a PBM can be fraught with complexities and potential conflicts of interest. By asking the right questions, employers can navigate the landscape more effectively, choosing providers that uphold fiduciary responsibilities and transparency. A contract-level standard framework, like that proposed by US-Rx Care, equips employers with the tools needed to make informed decisions, reinforcing their role as stewards of their employees’ healthcare.

For organizations serious about managing their pharmacy benefit costs while ensuring the best outcomes for their members, a transparent and accountable PBM is no longer just a preference—it’s a necessity.