Keeping Watch on Pharmacy Network To Maximize Rebates, Minimize Costs

PBMI recently received a telephone call from an employer expressing surprise to find that one of the pharmacy chains participating in its network was distributing coupons to encourage the purchase of prescription drugs that were not on the employer's PBM formulary. The pharmacy chain was encouraging the employees to use higher cost drugs; potentially increasing the employer's drug spend. Consequently, the employer asked its PBM to drop the chain from its network. At the time this article was drafted, this issue had not been resolved.

Some pharmacies are contracting with drug manufacturers to help those manufacturers increase their market share. In exchange, the pharmacies receive payments from the manufacturers either based upon a market share calculation or some payment for each patient converted from a competing drug. Many in the industry have worked under the assumption that these efforts only would be extended toward individuals that pay cash; not those managed by a PBM.

These efforts harm plan sponsors in two ways. First, assuming the PBM's formulary is designed to encourage the use of equivalent quality, lowest cost drugs, the pharmacies may be encouraging the use of higher cost drugs. Second, the pharmacies are capturing any rebates associated with these drugs. These rebates are not shared with the employer.

PBMI's standard Request For Proposal document asks PBMs to identify whether pharmacies are precluded from acting in this manner. Historically, most PBMs have indicated that the pharmacies are precluded from doing so. However, a review of PBM pharmacy contracts has identified only a small number that actually contain language that precludes pharmacies from behaving this way.

Contract for Success

The enforcement of such a contract provision may be problematic. PBMI is not aware of any specific auditing action that investigates this issue. In the instance identified in the first paragraph, the benefits manager was given information and a coupon by the pharmacy about switching prescriptions. Without some serendipitous event such as this, the employer and PBM will not be aware when, where and how frequently this occurs.

Current industry trends provide one potentially mitigating factor. The use of a three-tier formulary may provide some protection. Penetration of three-tier formularies had increased to 35% of employers by December 2000, based on PBMI research. Employees are not going to switch to a non-formulary drug and incur higher copayments just because they're offered a $5 coupon. However, employers should not assume this totally protects them because there may be a great variation between the lowest cost and highest cost drugs within a therapeutic category.

What is the best course of action for employers and plan sponsors? PBMs should have contractual language with their pharmacies that preclude the pharmacies from independently attempting to influence drug selection contrary to the PBMs' efforts. Request a copy of the pharmacy contract from your PBM and discuss this issue with your PBM.