Encore! EP397: The Minefield That Is a PBM Contract and Also Some Advice for EBCs Who Are Taking Money Under the Table, With Paul Holmes

Today is an encore because I am going on vacation next week. It always feels a little bit like a time warp because by the time this show will air, I will be back from vacation. This show with Paul Holmes was one of the most popular episodes of 2023 and definitely is just as relevant now. A lot of the things that Paul talks about are worth repeating or listening to again.

For a full transcript of this episode, click here.

If you enjoy this podcast, be sure to subscribe to the free weekly newsletter to be a member of the Relentless Tribe.  

Before we kick in, though, I’m gonna repeat something that Ge Bai, PhD, CPA, says a lot: There’s no angels and there’s no devils in the healthcare industry. But we are talking about for-profit entities. And if there’s one thing that’s generally true about a for-profit entity, especially one that is publicly traded, it’s gonna do whatever it can get away with. It becomes up to the customer to set expectations and using the purchasing discipline that they probably use everywhere else in the business because it basically is good business to have purchasing discipline.

Before we kick into the episode, just a couple of things. Thing one, if you haven’t, do subscribe to the weekly email that goes out describing the show. Here’s just one reason to do so. It’s really efficient because what is transcribed in that email is the whole beginning half (usually) of the introduction. So, if later on you are trying to remember which episode you heard something in, you can just search your email and find the show.

How you subscribe is go to relentlesshealthvalue.com, hang out for probably 15 seconds, and there will be a pop-up. And while you’re on the Web site, here’s something else you could do. Go to the lower right-hand corner of the Web site. You will notice a little button. It’s an orange button. There’s a microphone. Click on that; say something like your name, your company name, maybe a word or two about Relentless Health Value; and then encourage others to subscribe to the weekly email that goes out, similarly to what I just did. Then what our team will do is take that recording and potentially use it at the end of some of the shows so we can hear somebody else talk besides myself.

So, please do go over to the Web site, click on that little microphone, and record something that you might want to share with the other members of the Relentless Tribe.

And with that, here’s your encore.

If this were a video show, I would stare into the camera with steely eyeballs right now and say that I have a special message for employer CFOs. If you aren’t a CFO, pretend that you are so that you get the full effect here.

So, now that we’re all CFOs, let’s pull up the company P&L (Profit and Loss) statement. This is what keeps us all up at night, right? Making sure that the net profit line at the bottom looks good.

We could decide to lay off a few people. Reorg something or other. Beat up a vendor. We also could go over and have a strident conversation with sales leadership about what they can do to jack up their sales revenue. Top line begets bottom line and all that.

Or, here’s another idea: In this healthcare podcast, I am speaking with Paul Holmes, who is an ERISA (Employee Retirement Income Security Act) attorney with a specialty in PBM (pharmacy benefit manager) contracts, especially the PBM contracts from the big PBMs that get jammed in employer plan sponsor faces by whomever and which they are told look fine and that the employer plan sponsor should just go ahead and sign.

Now, if we, meaning all of us CFOs, sign that paper, or someone on our benefits team signs the paper … fun fact, our company just spent 30% to 40% over market for our pharmacy benefits. That contract we just signed contains all kinds of expensive little buried treasures—treasures accruing to the PBM and other parties, to be clear, and coming at our expense. There’s 17-ish very common treasures in your typical PBM contract, and none of us will ever spot them unless we know what we are looking for.

But let’s dig into this for a sec, especially for all of us newly minted CFOs because the real ones already did this math.

Say our company spends whatever—we’re a bigger company, and we spend $100 million a year on our drugs. That’s a minimum of $30 million that we got taken for … $30 million a year.

Because of the huge dollars at stake (30% to 40% of drug spend), it’s certainly the advice of almost anybody that you talk to who’s an expert in PBM contracts to have a third party—not your EBC (employee benefit consultant), which we’ll get into in a sec, but somebody else (a third party)—review every PBM contract.

I mean, what’s the worst that can happen for anybody considering having an independent third party review their PBM contract? It costs a couple grand in lawyer fees, and they give it a stamp of approval. Knowledge is power, and now we know.

But let’s just say this third-party review doesn’t happen. We all go with a “devil may care” about this whole PBM overcharging us by 30% to 40% possibility. And let’s say the PBM contract is, in fact, a ride on the Hot Mess Express but we don’t know it. Here’s two pretty bad downsides, especially now, this year, since the passage of the CAA (the Consolidated Appropriations Act).

Number one bad thing: Plan sponsors may get sued as per the CAA for ERISA violations. It’s not just the company paying that extra $30 million, or 30% to 40%, right? It’s also employees. This is risk exposure, bigly. Just like it was on the 401(k) side of the house, which Paul Holmes, my guest today, mentions later on in the interview. He talks about just how much those lawsuits cost and, yeah, exposure.

As I mentioned three times already, today I am speaking with Paul Holmes about PBM contracts in all their stealthy glory. The one thing I came to appreciate is that these things are works of art … if you’re into those paintings of pretty flowers where, if you look hard enough, you spot a skull tucked in the greenery (memento mori).

Paul is a longtime ERISA attorney. He has dedicated his career to helping plan sponsors in their negotiations with PBMs and trying to help them reduce drug spend, especially drug spend that isn’t actually paying for drugs.

Here’s a link to an article we discuss about how a school district in Florida is suing their longtime EBC for taking $2 million a year in alleged secret payments.

We also mention an episode with AJ Loiacono (EP379).

And along similar lines, Jeff Hogan mentioned on LinkedIn the other day, “It’s pretty amazing that just in the course of the [past few] weeks, I’m reading, seeing, and hearing about big new CAA breach of fiduciary duty cases.”

So, Paul Holmes says this more eloquently, but if you’re a plan sponsor, definitely get your PBM contract reviewed and maybe consider working with an EBC who’s happy to sign the disclosure statement that your lawyer has provided without disclaimers.

Also mentioned in this episode are Ge Bai, PhD, CPA; AJ Loiacono; and Jeffrey Hogan. 

You can learn more by emailing Paul at pbh@williamsbarbermorel.com. 

Paul B. Holmes, JD, is a seasoned ERISA lawyer with nearly 40 years of specialization in that field. Paul joined Williams Barber & Morel Ltd. recently, after 31 years with Nixon Peabody LLP and Ungaretti & Harris LLP. Paul is one of the few ERISA lawyers in the United States, concentrating his practice on PBM contracting and oversight. Paul represents large employers, Taft-Hartley welfare funds, and governmental units in their selection, contracting, auditing, and disputes with large pharmacy benefit managers (PBMs).

This work includes active oversight of the request for proposal (RFP) process for selecting a PBM, the negotiation and customization of PBM contracts, and legal audits of PBM compliance with their contracts.

Paul provides insightful guidance on the prudent selection of independent pharmacy benefit consulting firms (who do not receive indirect compensation from PBMs), which independence is expressly required under Section 202 of the Consolidated Appropriations Act of 2021 (CAA).

Recent efforts have focused on reducing wasteful drug spend promulgated by large PBMs in dozens of categories. These include the preference of Humira® biosimilars, reducing off-label utilization of GLP-1s, reducing huge markups on certain specialty generics, and customizing PBM formularies and clinical protocols to better control spend.

He was selected, through a peer-review survey, for inclusion in The Best Lawyers in America® (2020 and 2021) in the field of Employee Benefits (ERISA) Law.

Paul received his bachelor’s degree from Bradley University and his Juris Doctor degree from the University of Illinois College of Law.

07:41 What are Paul’s usual observations when a PBM contract crosses his desk?

08:34 “If you just sign … one of their model contracts …, you’re probably gonna pay 30% to 40% above market on your drug spend.”

12:11 What is a PBM lawyer? And why is it important to find an ERISA PBM lawyer?

17:12 EP379 with AJ Loiacono.

17:40 Who is on the hook for the cost of the PBM contracts?

21:05 What’s the problem with most ERISA lawyers today?

22:56 Lawsuit about PBM contract.

27:43 What’s Paul’s advice for benefits consultants?

31:40 How much might a plan sponsor be paying their consultant versus what a consultant might be making from a PBM?

Recent past interviews:

Click a guest’s name for their latest RHV episode!

Ann Kempski, Marshall Allen (tribute), Andreas Mang, Abby Burns and Stacey Richter, David Muhlestein, Luke Slindee, Dr John Lee, Brian Klepper, Elizabeth Mitchell, David Scheinker (Encore! EP363)