How Muddied Drug Definitions Affect Contract Performance

Pharmacy benefits contracts are an essential tool for your self-funded clients. In holding the contract, it is critical that you understand the definitions and terms governing the arrangement. We have seen a lot of contracts that contain very tricky – and sometimes even conflicting – language. This is commonly referred to as pharmacy optics.

One of the main optics we see is regarding how brand-name and generic drugs are defined in the pharmacy benefits contract. Oftentimes, pharmacy benefit managers (PBMs) will include their own definitions for what they consider to be a brand or generic drug, which may not follow Medi-Span’s classification. Likewise, these definitions could differ from how the PBM classifies those same drugs for reconciliation purposes.

Single-source generics offer a prime example of this. A single source generic refers to a generic drug that has entered the market after the brand-name drug has lost its patent exclusivity. Typically, it means there is just one or very few generic drug manufacturers, and so the single-source generic is treated more like a brand drug, even though it’s defined as a generic by the Medi-Span drug database.

For example, a generic drug that would receive a 80% or greater discount of may only receive a 15%-20% discount. This difference is huge, especially knowing that most pharmacy benefits plans’ generic dispensing rates are around 85%-90% of their overall pharmacy utilization. Carriers and PBMs use what appear to be enticing pricing discounts and rebates “on paper” to lock in plans. So it becomes very important that you read the fine print in the contract and make sure that you also understand the long-term effect that the drug definitions may carry.

Find out about other pharmacy benefits contract pitfalls that may be impacting your clients in our on-demand webinar, Overcoming Uncertainty, or in our Contract Best Practices e-book.

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