Essential PBM RFP Guide for Self-Insured Employers

Understanding the Importance of a PBM RFP

As self-insured employers, managing pharmacy benefits effectively is crucial for controlling costs and ensuring employee satisfaction. A Pharmacy Benefit Manager (PBM) plays a significant role in this process, making the RFP (Request for Proposal) stage a pivotal point in selecting the right partner. This guide outlines the essential questions to ask, key metrics to benchmark, and red flags to watch for in standard contract language.

Key Questions to Ask in a PBM RFP

When drafting your RFP, it is essential to cover all bases to ensure you choose the best PBM for your organization. Here are critical questions to include:

1. Cost Structure

   • What are the administrative fees, and how are they calculated?
   • Are there any hidden fees, such as setup fees or termination fees?
   • What is the percentage of the spread profit retained by the PBM?

2. Drug Pricing and Discounts

   • What is the Average Wholesale Price (AWP) discount offered?
   • What are the maximum allowable costs (MAC) for generic drugs?
   • How often are drug pricing benchmarks reviewed and adjusted?

3. Formulary Management

   • Can you provide a copy of the formulary, and how frequently is it updated?
   • What are the criteria for adding or removing drugs from the formulary?
   • How do you handle prior authorizations and step therapy protocols?

4. Clinical Programs

   • What medication therapy management services do you provide?
   • What percentage of members participate in these programs?
   • How do you measure the effectiveness of these clinical interventions?

5. Reporting and Transparency

   • What key performance indicators (KPIs) do you track?
   • Can you provide a sample of your reporting tools and frequency of reporting?
   • How transparent is your data on drug utilization and cost savings?

Metrics to Benchmark Against

When evaluating PBM proposals, use the following metrics as benchmarks to assess their performance and competitiveness:

• Administrative Fees: Aim for fees between $1.00 to $3.00 per member per month (PMPM).
• Discounts on AWP: Target at least a 15% discount on brand drugs and 50% on generics.
• MAC Pricing: Ensure MAC pricing is competitive—benchmark against an average of 80-90% of market rates.
• Utilization Management: A well-managed PBM should achieve at least a 10-15% savings through utilization management strategies.

Red Flags in Standard Contract Language

While reviewing PBM contracts, be vigilant for specific red flags that may indicate unfavorable terms:

1. Lack of Transparency Clauses

   • Contracts that do not allow for independent audits of drug pricing or rebates should raise concerns.

2. Ambiguous Terminology

   • Avoid contracts that use vague terms like "competitive rates" without clear definitions or benchmarks.

3. Restrictions on Formulary Changes

   • Contracts that allow the PBM to change formularies without adequate notice or justification can lead to increased costs.

4. Unfavorable Termination Clauses

   • Look for contracts that impose excessive penalties for early termination or lack a clear exit strategy.

5. Inadequate Reporting

   • Contracts that do not specify regular reporting intervals or the type of data provided can lead to surprises in cost management.

Conclusion

Navigating the PBM RFP process is a complex but essential task for self-insured employers aiming to manage pharmacy benefits effectively. By asking the right questions, benchmarking critical metrics, and identifying red flags in contract language, you can make an informed decision that aligns with your organization’s financial goals.

Bottom Line

Review your current PBM RFP process and ensure you’re asking comprehensive questions, using data-driven benchmarks, and scrutinizing contract language carefully. The right PBM partner can save you significant costs and improve the overall health of your employee population.