4 Key Areas to Analyze in Your PBM Contract

Build Your Knowledge for Better Plan Performance

Reading pharmacy benefits management contracts can feel like slogging through a river of acronyms, abbreviations, and foreign words. The language used impacts plan performance, employer cost, and the quality of care for plan members. If you’re a benefits broker, understanding words and definitions is vital to client satisfaction and retention.

We’ve outlined four key areas to analyze in a pharmacy benefits management contract and included questions to ask. Understanding the contract language in each of these areas helps ensure a plan aligns with your goals.

“Whether you’re new to health care and pharmacy benefits or you’re a seasoned benefits professional, deepening your knowledge base is always valuable,” notes Aaron Searls, RPh, MBA, Vice President, Business Development, True Rx Health Strategists. “The industry is constantly introducing new plan strategies and expanding the list of terms used in contracts. We always want employers and brokers to thoroughly understand their contracts.”

You can also expand your knowledge of plan language in the True Conversations webinar, Cutting Through PBM Jargon. In this recorded webinar, Searls and guest panelists dive into how industry jargon affects strategies and contracts.

4 Key Areas in Your PBM Contract

Pricing Model

Understand the pricing model for prescription drugs may help you determine if a PBM contract has hidden costs and allow you to compare contracts more easily. A few of the terms used in pricing include:

  • Average wholesale price (AWP): A published price for the drug based on data from drug manufacturers and distributors.
  • National Average Drug Acquisition Cost (NADAC): Reflects monthly purchasing trends across retail pharmacies within the United States.
  • Maximum Allowable Cost (MAC): The maximum price a plan will pay for generic drugs and brand-name drugs that have generic versions available.


Rebates and rebate transparency have become hot topics. Understand how your contract defines rebates and know how rebates fit into the big picture. Are strategies in place to drive utilization of more cost-effective generic drugs instead of the brand drugs that offer rebates? Key questions include:

  • Is step-therapy in place, requiring a more cost-effective drug to be used first?
  • Is prior authorization required for a higher-priced drug?
  • What is the generic drug dispensing rate for the PBM?

Formularies Designed to Balance Cost and Care

Plans will utilize either an open formulary or a narrow formulary or a variation of these. Start analyzing formulary choices with these questions.

  • Is the formulary designed to deliver the best possible care for plan members while also controlling drug costs?
  • Are pharmacists available during plan design to help clients understand clinical implications of each formulary option?
  • Can the PBM provide context around the predicted costs of different formularies?

Maintenance Refills

While contract terms around medication refills may seem less important in the plan performance picture, this area often impacts client cost and patient satisfaction. Some PBM companies use a shorter cycle for sending automatic 90-day refills, leading to patients having an overstock of medications and clients paying for it. Other contracts might require clients to use a designated source for mail order prescriptions. Questions to ask include:

  • Are maintenance refills mandatory and is a 90-day supply required?
  • How often are automatic 90-day refills sent to members?
  • Are members required to use mail order for all maintenance medications or are they allowed to use any in-network retail pharmacy too?

Watch the Cutting Through PBM Jargon Webinar to Lean More

Keep expanding your knowledge and skills for analyzing PBM contracts in our True Conversations webinar, Cutting Through PBM Jargon.

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