More About Contracting

More About Contracting

Vendor Performance Guarantees

Beyond the question of integration or carve out for pharmacy benefits, the following three performance guarantee categories are very important in vendor contracts related to specialty drugs and specialty pharmacies:

  • Sufficiently cover all of the required service components related to the distribution or use of specialty drugs.
  • Adequately measure vendor performance related to the distribution or use of a specialty drug.
  • Sufficiently incent or penalize the vendor to deliver appropriate performance metrics related to the distribution or use of a specialty drug in order to optimize both clinical and financial outcomes.

Most vendors offer drug utilization review services, clinical programs and other services that help to ensure the most appropriate use of a specialty drug. It is also important for each employer to review their vendor contract and detail the services contained in each.  These services should include, but are not limited to:

  • Formulary management
  • Drug utilization review
  • Physician profiling (e.g. reviewing prescribing patterns)
  • Generic substitution programs, if and when appropriate
  • Therapeutic interventions
  • Disease and/or care management, along with care coordination across the medical and pharmacy benefit vendors
  • Specialty drug case management, including the level of integration of these programs and services across channels of distribution that are included by the vendor

Employers must carefully review the written contract, including the terms used to describe how services will be provided, to see if they offer the most benefit to the company and their covered population. If these terms are not clear or are deemed negative, they can have a significant effect on the relationship between a vendor and the employer client and could possibly affect the outcomes the employer is seeking.

Key areas regarding specific contract terms include:

  • Definition of terms
  • Transparency
  • Exclusivity
  • Termination rights
  • Customization
  • Audit rights
  • Sharing employer-owned plan data with a third party
  • Plan for vendor meeting contract terms or performance guarantees
  • Plan for dealing with natural or manmade disasters
  • HIPPA compliance protocol including process for accidental or intentional breech of member privacy

Equally important are the financial terms contained in the contract. The following information should be clearly defined in the contract so that the most informed decision can be made:

  • Retail brand drug discounts
  • Aggregate retail generic drug discounts
  • Mail-order brand drug discounts
  • Aggregate mail-order generic drug discounts
  • Extensiveness and effectiveness of the drug MAC list
  • Specialty drug discounts
  • Breadth of drugs classified as specialty drugs, including a comprehensive listing of included or excluded drugs
  • Any rebates or other revenue to the vendor from drug manufacturers
  • Administrative fees paid to any other organization by the vendor on your behalf
  • Estimation of costs for member communications as a result of plan design changes or errors in administration

Addressing Vendor Conflicts

Contracting for specialty drugs is different from traditional drug products. Determining the company’s needs and designing the strategy first is essential for obtaining an effective RFP for selecting a vendor. However, a company should be prepared for push-back on some of the contract terms that have been included.

Below is a summary of ways to prepare for this discussion based on the terms that may be the biggest challenge. While the considerations below may limit vendor choice by employers, it does not change the need to know about them or to address them in a vendor contract.

  • Address care coordination issues across different sites of care involving the use of specialty drugs.
  • Ensure patient safety and effectiveness considerations regarding the selection as well as use of specialty drugs.
  • Identify different regulatory requirements effecting drug distribution from manufacturers and patients using these types of products.

Develop a side-by-side comparison to evaluate and match contracted service components from all vendor contracts with respective performance guarantees, a proposal or contract evaluation spreadsheet. It is recommended that you use some form of a contract level rating scale using these five areas:

  1. Performance criteria that are most likely to incentivize the right actions on the part of the vendor with respect to all service components, whether paid as part of, or separately, from the specialty drug.
  2. Performance measurement methodologies that are most timely and reliable in assessing performance criteria and that are most favorable to your company and covered population.
  3. Where vendor analysis and reporting responsibilities are not made explicit or not comprehensive, consider other sources of benchmarking to recommend best practice or standard of care terms and performance guarantees.
  4. Audit terms which incentivize a vendor’s timely, complete and correct cooperation with audit processes, which your company may require.
  5. Rationale for final vendor solution recommendations including circumstances which your company and covered population should consider in establishing any changes to specific contract terms or performance guarantees.

Example of a comparative template

Evaluating Contracts for Renewal

As part of a continuing cycle of performance review, the annual and deep-dive evaluations of in-place vendor contracts can be important when you determine whether or not to seek out new vendor partners.  Other important drivers for review are the rapid changes occurring in health care information technology, supply chain and specialty to personalized drugs. Such evaluation is particularly important when trying to change benefit offerings or introduce innovation over a specified time as a result of internal business strategy plans. One example is the case of integrating benefit plan data or coverage options, something that many employers have opted to increasingly do in tight fiscal times.