Pharmacy benefits management can feel like a daunting, unending, winding road of uncertainty. And there are often large discrepancies between the purported outcomes from a pharmacy benefit manager (PBM), and the true value provided.

PBMs are third-party administrators of prescription drug programs, who are primarily responsible for processing and paying prescription drug claims. But the underlying contract between the customer (e.g., plan sponsor) and the PBM can vary widely along dozens, if not hundreds or different definitions, contract terms, and other caveats. Getting the contract right really does matter – for example, in our experience, the actuarial difference from a high performing PBM contract can be 10% or more in terms of reduced expected drug spend. That translates to savings of at least $100-$150 per life, per year.

As a result, it is critical to ensure that you are maximizing the value of your PBM, by making sure your contract is aligned around the right drugs, at the right time, and in the correct setting, with the right levels of transparency.

Your contract is one of the linchpins to maximizing the value of your PBM relationship. This is also where HealthTrust can help. We are both a large purchaser of pharmaceuticals direct from manufacturers and we operate the largest sole-sourced PBM in the nation. This provides comprehensive data and true visibility to all sides of the complex pharmaco-finance ecosystem.

We have deep expertise in this space, and have outlined the following five key things that can help you understand and navigate the PBM market within the context of contract negotiation, specifically:

  1. Average Wholesale Price (AWP)

    Average Wholesale Price or “AWP” is a common and practical term. However, AWP is not the pharmacy or PBM’s actual acquisition cost. Rather, it’s an index that creates a spread between drug costs for you versus what the pharmacies really pay for drugs from wholesalers.

    In a contract, a PBM may offer discounts off the AWP, often broken down by type of drug. For example, generic drugs filled at a retail pharmacy for a one-month supply might have one “AWP minus x%” guarantee, whereas brand drugs filled by the PBM’s own mail order pharmacy might have “AWP minus y%” for those prescriptions, and so on.

    How the AWP is specifically defined, though, is very important for PBM contracting purposes. 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. This language should be firm before you make your PBM decision, as it alone can have a meaningful financial impact.

  2. Brand vs. Generic Drugs

    It is also critical to identify the differences between brand and generic drug classification. How a PBM contract defines brand versus generic drugs will have a substantive impact on overall value.

    There are many variations in practice, but when dealing with brand versus generic drugs in your PBM contract, you must ensure the following: single source generics should be classified as generics; the definition of “generic” should also include “generics in short supply,” any drugs under patent litigation, “House Generics,” and “DAW-5” claims; and any drug that is moved to be treated as a brand should always receive the minimum rebates. Appropriate language here can have a meaningful financial impact.

  3. Specialty Drugs

    Similarly, it is critical to properly define specialty drugs, as they are the most ambiguous segment in pharmaceuticals today. Specialty drugs are also the most likely largest single area of spend for a given plan. So, when it comes to your PBM contract, you should pay close attention to the following:

    • Include a fixed list of National Drug Codes (NDCs) that comprehensively represent what is deemed a specialty drug, regardless of the included specialty definition
    • Ensure this specialty drug list is not updateable merely at the PBM’s discretion
    • Treat limited distribution drugs the same as any other specialty drug
    • Make sure any movement of drugs on or off the specialty drug list requires approval by the plan, and with sufficient notice

    This is a critical element, because without this language your specialty drug spend could increase significantly.

  4. Rebate Language

    Most PBM deals offer minimum rebates that vary in amount by type of claim, with the largest amounts paid on specialty drugs. When it comes to rebate language in your PBM contract, you should demand 100% pass through – and not just rebates but other forms of compensation, as well. The fact is that “rebates” are just one component of monies paid to PBMs, many of which they retain if you don’t do something about it.

    It is also important to be explicit in defining which drugs are not paid the minimum rebate, as well as document the key sub-types that are included for application of the rebates. Minimum rebates should also be required to be paid quickly and associated documentation should be included for plan validation. The financial impact of this language can be material to the monies credited to your plan.

  5. Treatment of Generics

    While there can be different prices for the same drug, the maximum allowed cost (MAC) price is a subset of products where the PBM may also have the ability to set the price for many individual drugs. And, the less that is codified in the contract, the more flexibility the PBM has to bend the results in their own favor.

    When you’re dealing with the treatment of generics in your PBM contract, you must make sure the total generic discount (GER) guarantee encompasses all kinds of generics (whether MAC or non-MAC). You should also ensure that the MAC list is contractually well defined, and that overall audit rights include the MAC list. As with the other examples, the effect of this language is meaningful toward your plan’s drug spend.

To be clear, PBMs are an important tool that can and should be leveraged to maximize cost savings for plan sponsors and patients. But, how the PBM is used is as important as anything. At HealthTrust, our objective is always the same: secure the best price AND the most advantageous terms for enrollees in our PBM program, leveraging our scale and expertise.

We know that making a PBM decision can be tricky and frustrating. By partnering with us, we can help you ensure you receive the best results – in both the short- and long-term.

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 program, please reach out to us at

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