Finance News & Insights

The ‘clawback’ crisis: Is your pharmacy benefit manager ripping you off?

When financial chiefs enlist the services of a pharmacy benefit manager (PBM), they operate under the assumption that PBM is doing everything in its power to help their company. In many cases, however, the PBM is benefiting at the company’s expense.

That was a warning issued by Gregory I. Madsen, the co-CEO of Innovative Rx Strategies, LLC, at the 2017 Mid-Sized Retirement & Healthcare Plan Management Conference in Phoenix, AZ.

One of main ways PBMs are taking advantage of employers is through “clawbacks” on cheap generics.

Co-pay vs. actual drug cost

Because its not uncommon for a retail pharmacy’s Usual and Customary (U&C) price — i.e., its cash price — to actually be less than the employee/member’s co-pay or the discounted ingredient cost that’s negotiated by the employer, PBMs often take advantage of that disparity — especially in the case of generics.

Here’s an example of how it happens: Say a company has negotiated a $10 generic co-pay with the PBM that the member pays the retail pharmacy for a generic drug, but the cost of that drug is actually $2. In a clawback scenario, the PBM will pay the pharmacy for the price of the drug — and possibly a small profit — then the PBM “claws back” the remainder of the co-pay for itself and the employer has no idea what transpired.

These clawbacks are far from outliers. In fact, Madsen said clawbacks take place in 10% of all pharmacy transactions. And PBMs fill their coffers with amounts as low as $2 or as high as $30 per prescription.

‘Lowest of language’

Luckily, there is something employers can do to prevent clawbacks from happening, and it all starts with how a PBM contract is worded.

Madsen encouraged employers to make sure their PBM contracts include something called the “lowest of language.” When the PBM contract includes “lowest of language” it ensures members always pays the lowest of the discounted ingredient cost, their copay or the pharmacy’s U&C, instead of just the co-pay.

Based onWhat to Expect for Pharmacy and Drug Cost Trends for 2017,” by Gregory I. Madsen and Michael J. Staab, Innovative Rx Strategies, LLC, as presented at the 2017 Mid-Sized Retirement & Healthcare Plan Management Conference in Phoenix, AZ.

 

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