As prescription drug costs continue to rise and litigation targeting health and welfare plan fiduciaries gains momentum, plan sponsors are under increasing pressure to ensure their pharmacy benefit manager (PBM) arrangements are cost-effective (from a fee and benefit cost perspective).
Federal and state regulators are intensifying scrutiny of PBM practices, and plaintiffs’ firms are following suit. In this environment, fiduciaries must take proactive steps to evaluate PBM performance, fees, and guarantees to avoid legal exposure and financial waste.
Here’s a practical six-step checklist to help plan sponsors strengthen their PBM oversight and reduce fiduciary risks.
- Conduct an independent legal review. Start by reviewing your PBM contract and the value provided by your consultants. An independent legal review from counsel experienced in negotiating PBM agreements can uncover hidden risks and ensure your agreement aligns with fiduciary obligations.
- Consider a request for proposals (RFPs). If your current PBM arrangement hasn’t been tested in the market recently, it may be time to issue an RFP. Competitive bidding can reveal better pricing, improve transparency, and provide stronger service options.
- Identify above-market pricing and hidden revenue. PBM contracts often contain complex pricing structures and opaque revenue streams. A detailed analysis by your legal counsel and consultant can help you identify areas where your plan may be overpaying and negotiate terms that reflect current market norms.
- Renegotiate or implement new terms. Whether you decide to stay with your current PBM or switch to a new one, ensure your contract includes clear, enforceable terms that protect your plan and participants.
- Audit for overcharges. Independent audits are essential for identifying and recovering past overcharges and ensuring that the PBM has satisfied its financial guarantees. Independent auditors without financial ties to your PBM or consultants should conduct these audits and legal counsel can guide you through the dispute resolution process to recover amounts due.
- Educate uour fiduciaries. Fiduciaries must understand their responsibilities under ERISA and other applicable laws. Regular training and updates on governance best practices can help mitigate personal and organizational risk.
Litigation is rising—Are you ready?
The new wave of fiduciary litigation is already here. Plans that fail to monitor PBM arrangements risk financial loss and legal liability. By taking these steps, fiduciaries can protect themselves and their plan participants while driving down pharmacy benefit costs.