PBM Contract Negotiation and Review

If this were a video show, I would stare into the camera with steely eyeballs right now and say that I have a special message for employer CFOs. If you aren’t a CFO, pretend that you are so that you get the full effect here.

So, now that we’re all CFOs, let’s pull up the company P&L (Profit and Loss) statement. This is what keeps us all up at night, right? Making sure that the net profit line at the bottom looks good.

We could decide to lay off a few people. Reorg something or other. Beat up a vendor. Stop buying the gold paper clips. We also could go over and have a strident conversation with sales leadership about what they can do to jack up their sales revenue. Top line begets bottom line, after all.

Or, here’s another idea: In this healthcare podcast, I am speaking with Paul Holmes, who is an ERISA (Employee Retirement Income Security Act) attorney with a specialty in PBM (pharmacy benefit manager) contracts, especially the PBM contracts from the big PBMs that get jammed in employer plan sponsor faces by whomever and which they are told look fine and that the employer plan sponsor should just go ahead and sign.

Now, if we, meaning all of us CFOs, sign that paper, or someone on our benefits team signs the paper … fun fact, our company just spent 30% to 40% over market for our pharmacy benefits. That contract we just signed contains all kinds of expensive little buried treasures—treasures accruing to the PBM and other parties, to be clear, and coming at our expense. There’s 17-ish very common treasures in your typical PBM contract, and none of us will ever spot them unless we know what we are looking for.

But let’s dig into this for a sec, especially for all of us newly minted CFOs because the real ones already did this math.

Say our company spends whatever—we’re a bigger company, and we spend $100 million a year on our drugs. That’s a minimum of $30 million that we got taken for … $30 million a year. That’s a metric load of our cold hard cash that got dumped out back and burned.

Because of the huge dollars at stake (30% to 40% of drug spend), it’s certainly the advice of almost anybody that you talk to who’s an expert in PBM contracts to have a third party—not your EBC (employee benefit consultant), which we’ll get into in a sec, but somebody else (a third party)—review every PBM contract.

I mean, what’s the worst that can happen for anybody considering having an independent third party review their PBM contract? It costs a couple grand in lawyer fees, and they give it a stamp of approval. Knowledge is power, and now we know.

But let’s just say this third-party review doesn’t happen. We all go with a “devil may care” about this whole PBM overcharging us by 30% to 40% possibility. And let’s say the PBM contract is, in fact, a ride on the Hot Mess Express, but we don’t know it. Here’s two pretty bad downsides, especially now, this year, since the passage of the CAA (the Consolidated Appropriations Act) at the beginning of 2022.

Number one bad thing: Plan sponsors may get sued as per the CAA for ERISA violations. It’s not just the company paying that extra $30 million, or 30% to 40%, right? It’s also employees. This is risk exposure, bigly. Just like it was on the 401(k) side of the house, which Paul Holmes, my guest today, mentions later on in the interview. He talks about just how much those lawsuits cost and, yeah, exposure.

As I mentioned three times already, today I am speaking with Paul Holmes about PBM contracts in all their stealthy glory. The one thing I came to appreciate is that these things are works of art … if you’re into those paintings of pretty flowers where, if you look hard enough, you spot a skull tucked in the greenery (memento mori).

Paul is a longtime ERISA attorney. He has dedicated his career to helping plan sponsors in their negotiations with PBMs and trying to help them reduce drug spend, especially drug spend that isn’t actually paying for drugs.

Here’s a link to an article we discuss about how a school district in Florida is suing their longtime EBC for taking $2 million a year in alleged secret payments.

We also mention an episode with AJ Loiacono (EP379).

And along similar lines, Jeff Hogan mentioned on LinkedIn the other day, “It’s pretty amazing that just in the course of the [past few] weeks, I’m reading, seeing, and hearing about big new CAA breach of fiduciary duty cases.”

So, Paul Holmes says this more eloquently, but if you’re a plan sponsor, definitely get your PBM contract reviewed and maybe consider working with an EBC who’s happy to sign the disclosure statement that your lawyer has provided without disclaimers.

Oh, hey … one last thing and new topic. Here’s a cool goings-on: Right now, the March Healthcare Classic is in full swing. Each spring, Josh Berlin’s rule of three team collaborates with other experts to predict which major trend will find itself at the top of the healthcare agenda over the next 12 months.

This year, their selection committee includes Anisha Sood; Danny Brywczynski; David Carmouche, MD; Shaheed Koury, MD; and Stephanie Mercado.

Check it out and weigh in yourself should you choose to do so.

You can learn more by emailing Paul at pbh@williamsbarbermorel.com.

Paul B. Holmes, JD, is a seasoned ERISA lawyer with nearly 40 years of specialization in that field. Paul joined Williams Barber Morel recently, after 31 years with Nixon Peabody LLP and Ungaretti & Harris LLP. Paul has extensive and unique experience in representing large employers and Taft-Hartley welfare funds in their selection, contracting, auditing, and litigation with large pharmacy benefit managers (PBMs).

Paul has logged over 8000 hours during the past four to five years, advising large employers and Taft-Hartley welfare funds managing their prescription drug benefit plans. This work includes active oversight of the request for proposal (RFP) process for selecting a PBM, the negotiation of final PBM contracts (including pricing, rebates, and audit rights), and regular audits of PBM compliance with their contracts.

He was selected, through a peer-review survey, for inclusion in The Best Lawyers in America (2020 and 2021) in the field of Employee Benefits (ERISA) Law.

Paul received his bachelor’s degree from Bradley University and his Juris Doctor degree from the University of Illinois College of Law.

06:06 What are Paul’s usual observations when a PBM contract crosses his desk?

06:57 “If you just sign … one of their model contracts …, you’re probably gonna pay 30% to 40% above market on your drug spend.”

10:35 What is a PBM lawyer? And why is it important to find an ERISA PBM lawyer?

15:37 EP379 with AJ Loiacono.

16:05 Who is on the hook for the cost of the PBM contracts?

20:36 What’s the problem with most ERISA lawyers today?

22:28 Lawsuit about PBM contract.

27:15 What’s Paul’s advice for benefits consultants?

31:11 How much might a plan sponsor be paying their consultant versus what a consultant might be making from a PBM?

You can learn more by emailing Paul at pbh@williamsbarbermorel.com.

Paul Holmes discusses #PBMContracts on our #healthcarepodcast. #healthcare #podcast

Recent past interviews:

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Anna Hyde, Dea Belazi (Encore! EP293), Brennan Bilberry, Dr Vikas Saini and Judith Garber, David Muhlestein, Nikhil Krishnan (Encore! EP355), Emily Kagan Trenchard, Dr Scott Conard, Gloria Sachdev and Chris Skisak, Mike Thompson