• Administrative fees are charged on a per-claim basis

• Reduces incentive to confirm the appropriateness of each prescription prior to it being dispensed

• Puts patients at risk of adverse drug reactions

• Contributes to abuse of addictive medications

Pass-through Contracting

• Administrative fees can be assessed on a per-member basis

• Administrative fees can be assessed on a per-month basis

• Number of claims processed does not directly impact revenue

Claim processing is driven by:

• Clinical considerations

• Preventing wasteful dispensing

• Preventing inappropriate dispensing

• Preventing dangerous dispensing

Each claim is reviewed from purely a clinical perspective to:

• Ensure patient safety

• Reduce cost

Traditional:

• Discounts specified in the contract are simply book-of-business averages

• PBM can propose a discount and keep the difference

Example:

• PBM offers a client a 18% discount

• PBM gets a 20% discount

• Keeps the 2% difference

PMP receives the discount

Pass-through:

• Discount specified in the contract is the guaranteed minimum

Example:

• PBM offers a client a 18% discount

• PBM gets a 20% discount

• 2% difference is passed through to the client

Client receives the discount

Traditional:

• PBM charges sponsor more for each prescription

• Keeps the difference

• Sponsor can not track how much PBM is earning

• which creates auditing challenges

Pass-through:

PBM does not profit from every drug that is dispensed

Sponsor can:

• Track drug cost

• Perform accurate audits

• Prevent clients from overpaying for their prescription drug benefit

Traditional:

A MAC list defines:

• Price the PBM is willing to pay per unit of a generic drug

• Encourage pharmacies to purchase drugs at the lowest possible unit cost

PBM advantage

• Can have different MAC lists for the pharmacy and client

• Lower MAC with pharmacy

• Higher MAC with client

• PBM keeps the spread in pricing

PBM pockets the difference

Pass-through:

• Aligned with the client’s best interests

• No upcharge to the client

• No hidden spread

Traditional:

• Actual acquisition cost (AAC) pricing is not offered in traditional PBM contracts

Pass-through:

If PBM owns the mail order and specialty pharmacy:

• AAC pricing is available

• Plan sponsor pays for each drug exactly what the PBM’s mail order or specialty pharmacy paid for a medication.

Pass-through Pricing transparency:

• Sponsors can easily see where prescription dollars flow

• PBM does not profit from each prescription filled

• First Out (FIFO) method for tracking inventory at the price-per-pill level

Traditional:

Price improvements:

• Are not implemented until the end of quarter or contract

• PBM during that time can pocket the difference

Pass-through:

Price improvements:

• Are passed through immediately

• PBM does no profit by overcharging plan sponsor

Traditional Contracts:

• Arrangements are often rigid

• Complex language

• Little ability to customize the program

PBM to maximize all available hidden revenue streams.

Pass-through:

Contracts:

• Straightforward language

• Easily modified