Post-sale Clawbacks by PBMs

A new type of post-sale recoupment has taken the center stage: Generic Effective Rate (“GER”). This is the latest method in which PBMs continue to squeeze independent pharmacies.

Post-sale clawback by Pharmacy Benefit Mangers (“PBMs”) have become a huge issue for independent pharmacies.  Traditionally, these include audit-associated recoupment and performance-based recoupment such as Direct and Indirect Renumeration (“DIR”) fees that are charged to the pharmacies.  Recently, another type of post-sale recoupment has taken the center stage and has caused grave financial harm to the independent pharmacies.  PBMs call it Generic Effective Rate (“GER”). 

GER is a contractual rate set forth by PBMs for the reimbursement on generic claims.  Notwithstanding, the scope and extent of generic claims are dictated by the contract language and can be different from the widely accepted definition of generic claims.  The theory behind GER is to enforce stability around the reimbursements that pharmacies receive in a given calendar year.  In stark contrast, GER has only brought financial harm and burden upon the pharmacies and many pharmacies had no choice but to close and sell their stores (often to PBM-owned/affiliated chain pharmacy well below the fair market value).  

Many pharmacies first became aware of GER in late 2018 when their Pharmacy Services Administrative Organization (“PSAOs”) indicated that PBMs will begin reconciling overpayments made to the pharmacies in excess of the contractual rate.  PBMs wanted their money back on claims that they claim the pharmacies received reimbursements over the payment threshold (i.e., contractual rate).  More troubling, GER has been applied retroactively as well as at the point-of-sale.  As noted above, the pharmacies became aware of GER in late 2018 because some PBMs and PSAOs have alleged that the pharmacies were overpaid on generic claims above the GER threshold and began withholding payments to offset the alleged overpayment.  Notably concerning, these were claims that the pharmacies already dispensed prescriptions to the patients.  Thus, the pharmacies were not only forced to return the reimbursements but also could not make up the acquisition costs of the medications.  Moreover, a number of PSAOs and PBMs have begun applying GER at the point-of-sale to escrow and reserve funds in anticipation of the year-end GER reconciliation and any resulting adjustment/liabilities fall upon the pharmacies.     

Generally, PSAOs, on behalf of the member pharmacies, negotiate and enter into an agreement with PBMs in order to enable the pharmacies to adjudicate claims and receive reimbursements.  In vein, GER is borne by a contract negotiated and entered between PSAOs and PBMs.  However, PSAOs do not necessarily have the comparable bargaining power when negotiating with PBMs, which manage the drug benefits for approximately 95% of the US population or 253 million American lives.  Hence, pharmacies, especially the independently owned retail pharmacies, have zero bargaining power when it comes to PBM contracts.  Recognizing this disparity in bargaining power, several states have implemented laws and regulations to monitor and manage PBMs.  In particular, Tennessee recently enacted HB 786 effective July 1, 2019, a comprehensive PBM reform bill which, among other beneficial terms in favor of pharmacies, added Tennessee Code § 56-7-3115, which provides: “A covered entity or pharmacy benefits manager shall not charge a pharmacist or a pharmacy a fee related to a claim unless it is apparent at the time of claim processing and is reported on the remittance advice of an adjudicated claim.” 

In the current climate, pharmacists and pharmacy stakeholders must be cognizant of the different types of post-sale clawback.  It is very difficult for an independent pharmacy to operate by only focusing on the patient service.  Hence, pharmacies should also focus on the administrative and business aspect of the pharmacy practice and be in compliance with different regulations and PBM requirements.

Author Contact Information:

Dae Y. Lee, Esq.

A.J. Barbarito, Esq.

Author Organization Information:

Frier Levitt is a national boutique healthcare law firm, providing comprehensive regulatory, transactional and litigation counsel to the Healthcare and Life Sciences industries.