The Impact of COVID-19 on PBM Contracts

Plan Sponsors, ranging from self-insured employers to government entities, have taken steps to relax requirements so that patients have access to healthcare and life saving drugs. However, some PBMs have taken the opportunity to syphon money out of Plan Sponsors, at the expense of both Plans and patients. We will discuss three areas of concern for Plan Sponsors during COVID-19.

Price Guaranty Provision.

PBM contracts often contain force majeure provisions that would allow PBMs to escape price guaranty provisions that have been negotiated by and between Plan Sponsors and PBMs. While price guarantees favor Plans, many force majeure provision potentially relieve PBMs of their contractual price guaranty obligations because of circumstances that are out of their control (e.g., COVID-19). In other words, PBMs, free of price guaranty provisions, can increase their revenue exponentially at the expense of Plan Sponsors and patients. More specifically, PBMs can create a larger spread, i.e., the difference between the amount of fees charged to Plan Sponsors for prescription drug claims and the reimbursement PBMs pay for such drugs to pharmacies in the PBM network. Notably concerning, PBMs have cut reimbursements for certain medications including anti-depressants. Express Scripts, Inc. (“ESI”) reported that antidepressants, anti-anxiety and anti-insomnia drugs increased by 21% between February 16 and March 1. Yet, ESI cut reimbursement for these drugs needed by patients now more than ever. In addition, due to the force majeure provisions, PBMs can deviate from rebate guarantees and pocket more revenue for themselves. Plan sponsors need competent healthcare counsel
to review these agreements and design a game plan to protect their interests.

Days Supply Limits.

Second, temporary suspension on quantity and days supply limits under 90 days could become a major issue for Plan Sponsors. The Centers for Medicare and Medicaid Services (“CMS”) has issued guidelines waiving certain requirements for Plan Sponsors in order to reduce patient encounters with their pharmacies and deter further spreading of the COVID-19. One of CMS’s actions was a waiver of restriction on quantity and days supply. Concurrently, CVS Caremark (“Caremark”) has announced that it is working with PBM clients to waive early refill limits on 30-day prescription maintenance medications. Caremark has also announced that it is waiving the policy of its affiliated pharmacy, CVS Pharmacy, to charge for home delivery of prescription medications, and that it is actively working with clients who do not offer 90-day supply benefits to waive early refill limits on 30-day prescription maintenance medications. Many PBMs have their own mail-order pharmacy. Now, without the 90-day supply restriction, PBMs are using this opportunity to push 90-day fills to the PBM’s wholly owned mail order pharmacies. In fact, some PBMs are projecting increases in members receiving 90-day mail-order prescriptions to be upwards of 20% even in voluntary mail programs. Notably, PBM-owned or affiliated mail order pharmacies have been placed under scrutiny for putting their profits in front of patient care. For the patients, it certainly limits patient access but also patients have reported instances where PBMs denied their prescriptions written or authorized by the patients’ physicians and where the PBM-owned or affiliated mail order pharmacies have not mailed their prescriptions on time. For the Plan Sponsors, drug spending will inevitably increase because PBMs have often negotiated better price guarantees for their own mail-order pharmacies that fill prescriptions for the 90-day supply, in comparison to drugs filled by independent pharmacies in the network. That being said, Plan Sponsors should anticipate to see a disruption in their usual monthly payments for pharmacy benefits.

Refill Too Soon.

Lastly, the waiver of refill-too-soon restriction could be another source of revenue for PBMs at the expense of Plan Sponsors. In the CMS guidelines mentioned above, CMS required Medicare Part D Plan Sponsors to relax their “refill-too-soon” restrictions.  Likewise, Caremark has announced that it is working with commercial PBM clients to waive early refill limits on 30-day prescription maintenance medication. Coupled with the relaxed restriction, PBMs’ patient steering to the their wholly owned or affiliated pharmacies will increase Plan Sponsors’ drug spending. It is well documented that PBMs have negotiated better pricing guarantees for their own pharmacies. Therefore, waiver of refill-too-soon restriction will encourage PBMs to steer patients and troll prescriptions to their own or affiliated pharmacies at the expense of Plan Sponsors. Plan Sponsors should carefully comb through the current contracts as well as applicable laws that would prevent PBMs’ from engaging in patient steering.

In summary, policies and guidelines issued by government agencies as well as relaxed guidelines set forth by PBMs amid COVID-19 pandemic will have the potential to affect pricing, costs to Plan Sponsors, and utilization trends. Plan Sponsors should consult with industry experts to navigate complex web of PBMs revenue schemes and tactics.  For more information about the work Frier Levitt does to help Plan sponsors, contact us today.

Read more about the issues that impact Plan Sponsors in our latest Plan Sponsor News newsletter here.

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