Mitigating PBM Compliance Risk through Thoughtful Selection and Performance Guarantees

Mitigating PBM Compliance Risk through Thoughtful Selection and Performance Guarantees

Elaine Rockney

Aug 31, 2015

Mitigating PBM Compliance Risk through Thoughtful Selection and Performance Guarantees

 It keeps us up at night.  Does our plan meet all the compliance requirements for the Affordable Care Act and other regulations?  The risk to our business is significant; from member satisfaction to sanctions and loss of product line certification.  While risk cannot be completely eliminated, a few solid business practices can ensure long term viability.  Choosing the right pharmacy benefit management (PBM) partner and holding them accountable with performance guarantees (PGs) is essential for well-rested mornings.

Many PBMs perform admirably; the level of issues is low and their response is swift, accurate and lasting.  For plans with flourishing PBM relationships, most feel there is little need to update contract language.  Nevertheless, consider adding performance guarantees upon contract renewal. If there is anything we can be certain of, change is eminent, good and bad.  In the absence of service or financial concerns, a well-thought out renewal remains critical to managing both risk and partnership expectation.

PBM contracts are often three year terms, with additional one-year auto renewals.  Many PBMs, if they are smart, will offer new pricing for an additional three years prior to the renewal period and take the opportunity to improve financial terms and incorporate the aforementioned performance guarantees to maintain future service levels before the completion sets in.

In the unenviable event that you are in year one or two of the contract and the current PBM is putting your business at risk, check your contract language for termination reasons.  Strong contracts allow termination due to lack of remediation of issues, especially compliance-related concerns.  This can help you issue a request for proposal (RFP) prior to a proscribed renewal period.  Make note of any notification requirements and time the termination notification to ensure continuation of services while allowing ample time for choosing a new partner.

Work with a knowledgeable pharmacy benefit expert to write your RFP.  They should get to know your business and your goals.  The RFP process, from writing, releasing, evaluating responses through to new PBM selection can take 30-90 days.  The contracting and implementation process can both begin immediately. The timeframe varies per plan but is typically between 60-180 days.

If you need a shorter timeframe, be prepared to pare down the day on commitments, but ask the PBM to continue to work on your plan specific requirement after go-live.  For example, your plan may have to go live on a PBM standard formulary for quick turnaround, but the PBM can program your custom formulary within the first 30 days.  The really critical piece is eligibility and when time is of the essence, that should be the primary focus.  Most other items can be updated over time.  Evaluate which plan components will truly cause the most disruption (either to members or financially to your business) and ask for those to be prioritized.  Other items can be simplified to a PBM’s standard to allow for a quick go live.  Being prepared for these compromises give you more negotiating power with an existing PBM where the relationship may be deteriorating.  When compliance is at stake, it pays to be ready to move quickly.

Given adequate time, selecting good partners through a strong RFP process is a critical step.  The RFP response should indicate a strong understanding of compliance risks.  The PBM should have appropriate oversight staff and expertise, as well as reporting demonstrating historical performance.  Ongoing surveys of the compliance landscape as well as controls on their internal processes should be highly evident.  Any specific areas of concern for your organization should be addressed in full.  The PBM should offer corrective and preventive actions plans in case of any incidents.  The risks cannot always be covered in full, and there is no perfect PBM although an appropriate and timely response is key to mitigating impact when events occur.

Now that the PBM has ensured their understanding and capability of performing to compliance standards, you need to ensure their performance.  Tying the PBM RFP responses to performance guarantees in the contract is a fundamental  step.  Ensure the PBM offers a significant portion of your administrative costs as penalties for non-performance.  This can range from 10-50% depending on amount of spend and mix of business types.

If you have a good partner and just need to add performance guarantees, ask the PBM to send you their PGs.  A good partner will likely send 10-20 items.  Think about what is important to you and add it if it is not on the list.  Remove any items that are not important.  PGs should cover your risk areas, not cover every little thing that might happen.  Too many PGs dilute the overall value by spreading the PBM’s risk.  Cover your risk with strategic, not scattered, performance guarantees.

Performance guarantees fall in three main categories: 1. Timeliness (are they going to get it done on time?) 2. Quality (will they continue to provide all the needed service and will they be right the first time?) 3. Financial (will they hit their quoted or guaranteed network rates?). 

Within the RFP response, the PBM will have given assurances that they will provide timely reporting and invoicing.  Hold them accountable with a PG on each.  Invoices and reports shall be delivered within X days after the close of the period (this could be weekly, bi-weekly, monthly). Eligibility files shall be loaded within one business day. Benefit plan updates shall be made within 5 business days.  Compliance issues will have a corrective action plan delivered within two business days.  Take into consideration all the time-bound activities that your PBM partner will perform and design a PG to mitigate any risk of non-performance.

The PBM will write about their quality processes. Hold them accountable with PGs such as: 99.9% of formulary updates shall be accurate, 99.9% of claim files submitted shall be accepted without error, all compliance requirements will meet stipulated performance guidelines, and 90% of member calls shall be handled with one interaction.  These and other guarantees will incentivize the PBM to ensure that they are meeting their commitments and keeping your groups within compliance guidelines.

Financial PGs ensure that pricing components hit their targets.  As drug mix fluctuates, pricing can vary widely.  The PBM can manage this and will, when you tie PGs to the financial bid.  Ensure their brand discounts stay deep, their MAC is actively tied to market shifts, generic drugs are not priced as a brand, and rebates are paying at appropriate levels.  Ensure your plan will be made whole if the financial guarantees are not met.  This payout should be considered separate from any timeliness or quality PG payouts.

In the contract, stipulate the measurement period for performance guarantees.  The PBM should report monthly, and pay either quarterly or annually depending on the type of guarantee.  You can put a PG on timeliness of paying PGs and quality of PG reporting.

Allocate PG payout amounts based on risk.  Will the non-performance cause reduced membership?  What if the lack of performance occurs during open enrollment? Will your plan(s) stay in business?  Assign large penalties to these high risk areas.  In general, tie the penalty to the projected revenue shortfall, or assign a reasonable percentage of the administrative fees to be paid back.  If there is low risk, consider eliminating the PG.  Keep the PGs laser focused on your high risk areas.

By selecting appropriate performance guarantees based on either current good performance or RFP responses, you can cover risk areas for your organization in your PBM contract.  Spotlight the compliance areas and breathe a little easier in the evenings, knowing your PBM partner has accountability to support your business.

About the Author

Elaine Rockney, PharmD, MBA, is Senior Vice President, Consulting with ARMSRx.  ARMSRx is a pharmacy benefit consulting firm with the mission to align the PBM's business objectives with the payor’s benefit goals. ARMSRx delivers intellectual capital. Elaine has 15 years of experience within PBMs, performing in both clinical and operational executive roles.