How to pare health plan Rx costs: with pharmacy coverage costs continuing to spiral upward, an attorney and consultant specializing in cost-containment strategies offers advice about how to lower plan expenses.

• Author: Cahn, Linda
• Position: HEALTHCARE

For more than two decades, soaring prescription coverage costs have plagued every corporate, union and government health plan in America. However, every health plan can decrease its prescription costs, and do so in only a few months, by implementing the following simple steps.

Step 1: Scrutinize and Rewrite Your Contract

The major determinant of a health plan's prescription coverage costs is its contract with a Pharmacy Benefit Management (PBM) company. Unfortunately, virtually all PBM contracts are filled with "loopholes" that continuously drive up health plans' costs. Moreover, while most PBMs claim to be providing "pass-through pricing" and "fully transparent" contract contracts, almost none actually do so.

By drafting a real "pass-through pricing" contract--and including "transparency" requirements--a health plan can dramatically lower its prescription coverage costs. By using the leverage of a request for proposal (RFP) to demand that new contract terms be accepted by a PBM, your health plan will obtain the contract terms it has drafted.

Here's how to accomplish both goals.

Step 2: Require REAL Pass-Through Pricing

Real pass-through pricing requires a PBM to invoice its client with the exact cost it is paying, for each drug dispensed, meaning each retail, mail and specialty drug dispensed. Real pass-through pricing also requires a PBM to pass through to its client all rebates and discounts (and other fees) the PBM obtains from all drug manufacturers and other third parties.

Unfortunately, while virtually all PBMs claim to provide pass-through pricing, their contracts incorporate none of the above terms. Instead, their standardized contracts typically contain pass-through pricing terms for retail pharmacy drugs, but allow PBMs to continue to impose "spread pricing" for every mail and specialty drug dispensed. As a result, PBMs purchase their mail and specialty drugs at relatively low costs, but invoice their clients far more, thus making large profit "spreads."

Moreover, by increasing their "spreads" on mail and specialty drugs beyond what they previously earned, PBMs re-take whatever profits they may have relinquished via their agreement to provide pass-through retail pricing. Similarly, PBMs write their contracts with their clients to pass through all "rebates" they may earn from drug manufacturers.

However, PBMs avoid passing through to their clients most "financial benefits" they receive, simply by re-labeling "rebates" with a different name in their contracts with manufacturers. For example, PBMs characterize "rebates" as "discounts" or "administrative fees" or "health management fees," thereby retaining the monies they would otherwise have been required to pass through.

Thus, to lower their costs--and increase their savings--every health plan must rewrite its PBM contract to ensure real...