An Audit Report on Pharmacy Benefit Manager Contracts at Selected State Agencies and Higher Education Institutions
August 2008
Report Number 08-042
Overall Conclusion
The Teacher Retirement System, the Employees Retirement System, the University of Texas System, and the Texas A&M University System have contracts for pharmacy benefit manager (PBM) services that include provisions that generally address high-risk areas. Having contract provisions that address high-risk areas helps to ensure that these organizations have required their PBM contractors to disclose the information necessary to sufficiently and appropriately manage their contracts. Auditors also determined that the agencies and higher education institutions have PBM contracts that include most of the applicable, essential provisions that are required by the State of Texas Contract Management Guide.
Opportunities exist to enhance PBM contracts by strengthening contract provisions for each of the high-risk areas auditors reviewed. Specifically:
- Audit rights: Contracts should include provisions that ensure agencies' and higher educations institutions' ability to audit PBM contractors is not limited or unreasonably restricted. Current contract provisions restrict agencies', higher education institutions', and independent auditors' access to information necessary to verify prescription drug plan costs and PBM contractors' compliance with their contracts.
- Costs, discounts, and other fees associated with the services provided by PBM contractors: Agencies' and higher education institutions' contracts define prescription drugs prices, discounts, and other fees that apply to their plans. However, additional contract provisions could help to ensure that agencies and higher education institutions clearly understand the true costs and discounts associated with their plans.
- Drug formulary management: Contracts should clearly state whether PBM contractors are allowed to or are prohibited from substituting a prescribed drug with a different drug preferred by the PBM contractors. In addition, agencies and higher education institutions do not always require PBM contractors to provide notification before adding, removing, or making other changes to the list of drugs that can be purchased through a prescription drug plan.
- Protection of confidential data: Agencies' and higher education institutions' contracts include provisions that require PBM contractors to protect the personal identities of their plan members in accordance with federal and state laws. However, contracts should define whether PBM contractors are allowed to or are prohibited from selling plan data from which plan members' personal information has been removed.
- Contract monitoring: Although agencies and higher education institutions generally define contract provisions to measure the performance and contract compliance of PBM contractors, there are inconsistencies in how performance standards are defined for standard services provided by all PBM contractors, such as cost-savings initiatives and customer service. In addition, agencies and higher education institutions did not consistently require PBM contractors to disclose any policies, practices, or business relationships that could conflict with their obligations under PBM contracts.
Other opportunities exist for agencies and higher education institutions to strengthen their PBM contracts. Specifically:
- Agencies and higher education institutions have limited guidance in developing contract provisions for PBM services. The Texas Health Care Policy Council can provide additional guidance for developing consistency in the provisions within contracts for PBM services.
- Agencies and higher education institutions do not identify the specific contract information that is considered proprietary. By clearly identifying proprietary information included in their PBM contracts, agencies and higher education institutions can respond more quickly to information requests. Auditors identified the rebate amounts that each of the agencies and higher education institutions received from PBM contractors for fiscal year 2007; however, information regarding those rebate amounts is not included in this report because certain agencies and higher education institutions questioned the proprietary nature of that information. See management's responses in Appendix 8 for additional details.
- Agencies and higher education institutions can adopt specific practices to provide assurance that contract provisions clearly recognize and benefit the interests of their plans and members. For example, agencies and higher education institutions should (1) incorporate key procurement documents and other agreements made during the contract procurement process in the final PBM contract and (2) obtain professional advice from outside consultants in developing PBM contract provisions.
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