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Expect More From... Transparency!

Writer's picture: Christine JohnstonChristine Johnston

With all the news related to drug pricing regulations and accompanying CAA plan sponsor fiduciary requirements, we thought we would take a step back and discuss what exactly is Transparency and how does it differ from Pass-Through.  These are two buzz words that are overly used in the pharmacy benefit management industry. At the risk of replacing Merriam-Webster, we would like to define what we think these two terms mean:


  • Transparency is simply an agreement that the Pharmacy Benefit Manager will disclose all of their sources of revenue related to the employers’ claims. It doesn’t necessarily mean that the employer will benefit from all of those sources of revenue, or that other sources of revenue indirectly related to an employer’s claims will be disclosed. Also, it typically doesn’t include disclosure of the sources of revenue that the PBM’s parent organization or other affiliated entities may derive from the employer’s claims.

  • Pass-Through is the willingness to share all the sources of revenue related to the employers’ claims with the employer.  Sometimes this is defined as the amount received by the PBM, and sometimes it is defined as all revenue generated from the claims.  This may seem like a minor difference, but it is really where the most of the PBM revenue is generated today. PBMs have been creating separate legal entities that they contract with so that they can attest to their clients that they are passing through all the revenue “they” receive.  We often see PBMs contracting with entities related to themselves in Specialty/Mail Order Pharmacies and Rebate GPOs. 


In the case of Specialty and Mail Order Pharmacies, the pharmacies are frequently owned by the PBM’s parent company, and the PBM contracts with the pharmacies via a network contract.  The difference in cost between what the pharmacy purchased the drug and the price they were reimbursed by the PBM is retained by the pharmacy as revenue. It is estimated that about 55% of the PBMs revenue comes from Specialty and Mail Order Pharmacies. There really isn’t an incentive for the PBM to negotiate an aggressive discount with their own pharmacy, as it would reduce the organization’s overall revenue potential.  The PBM bills the employer the amount they paid the pharmacy, and they can attest that they are “Passing Through” the discount to their Client. 


In addition, pharmacies receive rebates from drug manufacturers and wholesalers.  In most PBM agreements, employers do not benefit from these rebates.  Therefore, the PBM maybe passing through all rebates they receive, but they are not passing through all rebates received by their organization, as whole.


Ask your PBM about their relationships with the pharmacies that are owned by their parent organization.  Are they offering you a “cost plus pharmacy” agreement?  If so, does that also include the rebates received by the pharmacy?


Rebate GPOs/Aggregators:


We have written extensively about the interesting advent of the Rebate GPO (https://foundationalpharmacy.com/foundational-pharmac/post/expect-more-from-rebate-agreements).  Therefore, I will not rehash the entire article.  I think it is important to highlight one key point raised in the article: When PBM contracts with the GPO/Aggregator, they can claim they are passing through 100% of the rebates that the PBM receives, but they can’t claim that they are passing through 100% of the renumeration that was received from the manufacturers entirely.  Their separate entity is retaining a “fee” that is not being passed along to the employer. 


Ask your PBM about their rebate agreements.  Is their GPO/Aggregator owned by their parent organization or associated with their PBM?  What percentage of the rebates does the GPO/Aggregator retain?


If given the choice, I would choose Transparency over Pass-Through.  Ideally, we would have both, but it is important for you to understand all associated revenues that your PBM and their affiliated organizations can derive from your claims.  Once you understand the additional cost that is being retained or passed through, you can truly assess the value of your PBM.  We are not judging these practices, but if you want a partnership with your vendor, trust and honesty is the first step.

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