The Generic Effective Rate (“GER”) is a pricing model employed by many pharmacy benefit managers (“PBMs”) in contracts with pharmacies and Pharmacy Services Administrative Organizations (“PSAOs”) within their networks. In simple terms, under a GER model, a PBM establishes a benchmark reimbursement rate for a given set of generic drugs – usually expressed as a function of the Average Wholesale Price minus a percentage – which the pharmacy must be paid for a given period.
If the actual reimbursement paid to the pharmacy exceeds the benchmark reimbursement rate, the PBM may claw back the overage from the pharmacy as part of a retrospective reconciliation or true up. Conversely, if the reimbursement is less than the benchmark reimbursement rate, the PBM may owe money to the pharmacy and will issue post-point-of-sale payment to the pharmacy to bring reimbursement levels back into compliance with the GER threshold for the time period set forth in the contract.
This model is now increasingly being passed downstream to full-risk, value-based entities (“VBEs”), such as IPAs, ACOs, PACE Organizations, and other provider-sponsored plans responsible for the total cost of care for attributed patients.
How GER Impacts Value-Based Care Entities
If your organization is financially responsible for pharmacy spend, your payor partner – whether a PBM, Medicare Advantage Organization (“MAO”), or other Managed Care Organization (“MCO”) – may be deducting GER-related amounts from funds you would otherwise receive. These adjustments may appear on reports as payment reductions, reconciliation offsets, or undefined “pharmacy cost adjustments.”
If you’ve identified these adjustments, you’re already ahead of the pack, but how do you know they’re appropriate or accurate – and did you ever actually agree to pay them under your current value-based care contract? This is where skilled healthcare counsel comes into play.
A Critical Problem: Lack of Transparency
In our experience, payors will often refuse to disclose the actual GER rates used resulting in these negative adjustments, leaving providers unable to validate the legitimacy of the charges. Payors often leverage to force providers to swallow the loss without ever knowing why or whether the costs are even bona fide. Moreover, just because your VBE may be required to cover pharmacy costs for its attributed patients doesn’t mean GER is an appropriate cost under your particular contract. GER rates and their application by PBMs, like Caremark, have been under recent government scrutiny, which is another factor consider in evaluating the propriety of the GER adjustments you may have been subject to.[1] Counsel can assist in making this determination.
Being a full-risk, downstream provider requires a VBE to handle extremely complex and voluminous data streams pertaining to payments and costs – it can be easy to miss hidden or semi-hidden costs like GER fees unless you know where to look.
Why Frier Levitt
Frier Levitt has deep experience representing:
- Full-risk and delegated risk VBEs
- Pharmacies and PSAOs
- Providers in disputes with PBMs, MAOs, and MCOs
- Healthcare entities navigating value-based contracting and downstream risk
We routinely assist entities in:
- Identifying improper GER and pharmacy cost deductions
- Negotiating reimbursement corrections or settlement
- Challenging non-transparent payment practices
- Litigating against PBMs and payors when necessary
Whether you are exploring contract reformation, negotiation, or dispute resolution, Frier Levitt can help determine the most strategic and cost-effective path forward.
Frier Levitt provides strategic, industry-focused legal counsel tailored to your needs. Contact our team today to learn how we can help you.
[1] https://www.fiercehealthcare.com/payers/caremark-must-pay-95m-pennsylvania-louisiana-ag-unleashes-trio-lawsuits-against-cvs-health
Senior Associate
Senior Associate
