Contract Games

If you are presented with a standard contract from a PBM, it should be reviewed for your protection. Below are just a few of the areas to give extra scrutiny. All italicized content below is from actual contract language. Names have been changed to protect the guilty!

Formulary Manipulation

The following clause allows a drug that has higher rebate to replace a lower cost alternative. Relatively affordable biosimilar drugs are routinely bumped for the highest cost alternative as it benefits the PBM the most.

ABC Employer agrees to adopt PBM’s National Preferred Formulary in order to be eligible for rebates, whether rebates are paid or applied. Drugs and supplies included on the selected formulary may be modified by PBM from time to time as a result of factors, including, but not limited to, medical appropriateness, manufacturer Rebate arrangements, and patent expirations.

Admin Fees

If your contract states that there are no admin fees, you can bet that you’re being nickel and dimed in every other aspect of the contract. 

Contract Definitions

A generic isn’t necessarily a generic. How is this possible? There is language in many contracts that defines a name brand drug as a generic that is single source or even from multiple sources. 

Sample definitions:

“Generics shall be classified as multi-source generics with two or more manufacturers”

“Generics shall be classified as multi-source generics with more than two manufacturers”

In the second definition, there must be three or more manufacturers to be defined as a multi-source generic. 

From the example in Part 2, you learned that the discount off of AWP was more than 4x greater for generic vs name brand (80% vs 17.5%). If your PBM recategorizes generics as name brand, they enjoy a significant revenue increase at your expense. 

Revenue Sharing

Look for revenue sharing in your contract. There is absolutely no reason that your TPA or broker should be benefiting at your expense, especially on a per fill basis. PBMs reward TPAs and brokers for steerage. Misaligned incentives are increasing your costs in many hidden ways. These are out in the open. 

Rebates. TPA may have negotiated Rebate sharing with PBM, and TPA may be retaining such Rebates. Subject to the remaining terms of this Agreement, PBM will pay to TPA the amounts set forth in Exhibit B. Client acknowledges and consents to the same. Information regarding such Rebate sharing, if any, is set forth in the PBM Agreement or the related pricing exhibit.


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Contract language review is often overlooked or outsourced to a “trusted advisor” after a decision has been made based on a spreadsheet comparison. There are many nuances in contract language that can turn a spreadsheet winner into a major loser. All aspects must be reviewed and considered before deciding on a component that represents approximately 25% of your total spend. Utilizing an independent 3rd party with no financial incentive to assist in this step is a prudent choice to protect the plan’s assets.