Pharmacy benefit manager (PBM) contracts are complex and can seem difficult to decipher. It’s important to take the time to ensure your contract aligns with your firm’s objectives and allows employees access to the drugs they need at the right price. The good news is you don’t need to do this by yourself: there are resources to guide you through the process, ensuring your PBM contract meets the needs of your organization.

Watch the short video below to hear how many plan sponsors end up with a deal that seems different than what was communicated initially:

Gaining clarity on PBM contracts 

PBMs administer prescription drug programs and are primarily responsible for processing and paying prescription drug claims on behalf of plan sponsors. However, the fundamental contract between the plan sponsor and PBM can have several different elements – ranging from dozens to hundreds of varying and ambiguous contract terms, definitions, and other stipulations.

Negotiating the best contract for your organization is critical. As an example, high-performing contracts can result in an actuarial difference of 10% or more in expected drug spend reduction – the equivalent of $100-$150 in savings per year, per life. In other words, your contract is the launch pad to maximizing the value of your PBM.

To demystify the complexities and ambiguity around PBM contracting, there are five initial concepts to understand:

  1. Average Wholesale Price (AWP) – AWP is an inflated price from what pharmacies really pay for drugs from wholesalers; in a contract, a PBM may offer discounts off the AWP, usually broken down by type of drug. Within the PBM contract, an AWP should be based on a specific and credible index and should not be able to be substituted or repackaged.
  2. Rebate Language – The majority of PBM deals offer minimum rebates varying in amount by type of claim. It’s important to be explicit in defining which drugs are and are not paid the minimum rebate in addition to demanding 100% pass-through.
  3. Specialty Drugs – Defining specialty drugs correctly is critical as they are the most ambiguous segment in pharmaceuticals; most often, specialty drugs are also the largest single area of spend for a given plan.
  4. Brand vs Generic Drugs – There are many variations in practice, but when dealing with the brand versus generic drugs in your PBM contract, double-check that the language is correct as it can have a significant financial impact on the total non-specialty drug spend.
  5. Treatment of Generics – When dealing with the treatment of generics in your PBM contract, you must ensure the total generic discount (GER) guarantee encompasses all kinds of generics (whether Maximum Allowed Cost [MAC] or non-MAC).

It’s also important to understand what carries the most weight and value in a PBM agreement. Critical components include brand versus generic drug classifications and rebate determination and reconciliation.

Classifying brand versus generic drugs 

How PBM contract defines and classifies drugs as brands or generics has a significant impact on overall value. There are many variations of how this tactic is used in practice. First, when dealing with the brand versus generic drugs in your PBM contract, confirm that single-source generics are classified as generics. Second, the definition of generic should always include “generics in short supply,” any drugs under patent litigation, “DAW-5” claims and “House Generics.”

Further, any drug that is moved to be treated as a brand should at least receive the minimum rebates. This language is extremely important for PBM contracts and can have a financial impact of upwards of 3-6% of total non-specialty drug spend. HealthTrust will always put its clients first and be upfront about the costs and differences between brands and generic drugs when discussing PBM agreements.

Solidifying rebate language for positive financial impact

How rebates are determined and reconciled are both critical to the value of your deal. Most PBM deals offer minimum rebates that vary in amount by type of claim. When discussing rebate language in your PBM contract, it’s important to include 100% pass-through; this applies not only to rebates but also for other forms of compensation. Additionally, it’s critical to document the key sub-types included for rebate application and explicitly define which drugs are not paid the minimum rebate. The financial impact of this language can cost you up to 50% of total rebates, underscoring the reason why minimum rebates should be required to be paid quickly and associated documentation should be included for plan validation. HealthTrust is committed to ensuring that clients are always paid accurately and swiftly as cost saving is a priority.

It’s essential to emphasize how PBMs are a valuable tool that can be leveraged to maximize cost savings for not only the plan sponsors but also employees. At HealthTrust, our objective has been and will always be to leverage our scale and expertise to secure the best price as well as the most aggressive terms for enrollees of our PBM program. We understand how challenging it can be to maneuver a PBM contract. By partnering with HealthTrust, we can ensure that you have a smooth process and receive the best results for your organization and employees.

Discover the new standard in pharmacy benefits management with HealthTrust IHP and download the infographicTop 5 Things You Must Know to Negotiate a PBM Contract here

If you’re interested in learning more or getting help navigating your PBM contracts, please reach out to us at

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