Are Your Clients in Jeopardy?

Uncovering the mysteries of pharmacy benefit plans

By Rick Sutherland

Ever feel like Bill Murray’s character in Groundhog Day? You sit down with your morning coffee and open your daily news feed to see yet another article or comment about Big Pharma, prescription drug prices, the latest medication to hit the market, healthcare mergers and acquisitions. The scene repeats itself every day in what feels like an endless cycle of the pharmacy benefits affordability struggle and the drug pricing blame game.

Meanwhile, your clients are emailing and calling you looking for guidance and innovative solutions to their spending concerns. Fortunately, as Bill Murray’s character figured out, you too can re-evaluate your options and help your clients optimize their current benefit program to a more affordable trajectory.

What you need to know about pharmacy spending

The issue of pharmacy benefit affordability has never been hotter, with recent reports projecting that pharmacy spend will grow 6.1% year-over-year for the next seven years. In fact, pharmacy costs as a percentage of overall healthcare spend already have increased 40%. And more people are utilizing their pharmacy benefit, leading to more than $0.21 cents of every healthcare dollar being spent on prescription medications.

Changes in drug mix coupled with high brand and specialty drug prices have led us to this point. Generic utilization is nearly maxed out, and specialty drugs now account for more than 45% of total costs while representing just 1% of overall prescription claims. The reality is that we have reached the point where one prescription claim has the potential to financially devastate your clients, if pharmacy is not managed appropriately.

What PBMs don’t want you to know

More than 80% of the pharmacy market is controlled by the three largest pharmacy benefit managers (PBMs): CVS Caremark, Express Scripts and OptumRx. Yet access to essential PBM services continues to be allocated based on your clients’ size. Self-funding allows you to take control and significantly impact pharmacy costs for your clients.

In the self-funding model, your clients can have the pharmacy benefits either carved-in (pharmacy benefits bundled with the medical carrier) or carved-out (pharmacy benefits contracted separately from the self-funded medical plan). Either way, oversight for prescription drug spending is not usually the PBM’s priority unless your client is a Fortune 100 company. It’s your responsibility to fill that gap and help optimize your clients’ pharmacy benefit performance.

Avoiding contract pitfalls

Whether your clients have a self-funded plan or are evaluating self-funding as an option, your biggest opportunity to optimize their benefit is by negotiating a clean, client-friendly PBM contract. PBMs have many iterations of their contracts. If you’ve seen one PBM contract, you’ve seen just one PBM contract. PBMs may use some standard language across the board, but they customize important language and terms for each opportunity. Vague and misleading pharmacy contract language is a common issue that can dramatically affect your clients’ bottom line.

There are many parts of a pharmacy arrangement that can save or cost your clients a lot of money—and not all of them are obvious at first sight. In fact, one misalignment of just a few words in a 40-page contract will result in unnecessary spending on their prescription drug benefits. More than one contract misalignment can put their benefit plan in serious jeopardy.

Keeping an eye on these five main areas will help you protect your clients’ pharmacy plan from disaster.

Top 5 Risk Areas in Pharmacy Benefits Contracts

  1. Contract Length: Most PBM contracts are long‐term, three‐year arrangements. This often results in stale pricing in the second and third year, and the inability to respond to the rapidly changing pharmacy marketplace. A one-year deal is the only way to ensure your clients have access to the latest pricing and rebate terms.
  2. Pricing Terms and Definitions: Some PBMs classify brand and generic drugs using proprietary definitions that result in a brand or generic being reclassified by the PBM — making it easier for them to meet their pricing guarantees during reconciliation. Clear definitions ensure that drugs are classified properly, preferably following industry standard classifications, such as those provided in the Medi-Span Prescription Pricing Guide.
  3. Rebate Sharing: Rebates impacted up to 30% of employers’ total drug spending in 2019, with similar results expected this year. However, unclear contract language can prevent your clients from realizing this potential. Review the rebate terms to ensure they are competitive year-after-year, with a minimum guaranteed rebate amount and no restrictions.
  4. Lowest-of Pricing: Why should your clients’ members pay more than the PBM’s negotiated discount for a prescription drug? This can be avoided with contract language that guarantees members always pay the lowest possible price at the pharmacy.
  1. Misleading Guarantees: Contract language that puts vague qualifications on terms and guarantees is a huge red flag. For example, some medical carriers use language like “actuarially estimated charges” for their guarantees. If you’re seeing this type of unclear language, your clients likely don’t have guarantees specific to their contract and pricing terms.

 Key questions to start the conversation

As a trusted advisor to your clients, you have a responsibility to provide them with strategic guidance about their benefits program. This starts with a detailed evaluation of their specific challenges and risk areas. Then you can formulate an optimal strategy tailored to their benefit goals. These questions can help uncover the truth about their current arrangement:

  • How do you feel about your current pharmacy contract?
  • What data are you using to help you evaluate the financial and member impact of plan changes before you make them?
  • What is your long-term strategy to manage ongoing pharmacy spend?
  • Can you manage and adjust the pharmacy benefit as a stand-alone entity?
  • What visibility do you have into the pricing terms and performance data for your plan?
  • How are high-cost specialty drugs affecting your bottom line?
  • What are your rights to audit and exit the contract, if necessary?

Your clients’ pharmacy benefit costs can seriously impact their bottom line. Don’t miss the opportunity to be the agent of positive change. They are counting on you to help them avoid getting stuck in an endless cycle of uncontrolled pharmacy spending.


Rick Sutherland works in business development for RxBenefits, the nation’s first pharmacy benefits optimizer. He supports California brokers in the pharmacy benefit contracting process to help them evaluate their clients’ prescription drug plans for optimal savings, service, and clinical management. He can be reached at