What is the CAA & why does it matter?

Posted on: May 23, 2024

The Consolidated Appropriations Act (CAA) of 2021 expanded the Employee Retirement Income Security Act of 1974 (ERISA), which assigns fiduciary responsibility to self-insured employers for the healthcare services they purchase.

Navigating the Maze: Employer Responsibilities in PBM Contracts

Although the assignment of fiduciary responsibility is not new, the CAA recently expanded the scope of employer responsibility by requiring that employers show the healthcare services they purchase are cost-effective, high quality, and align with mental health parity and pharmacy benefit requirements. Employers are also now required to evaluate broker and consultant compensation for “reasonableness.”

Self-funded employers will have greater responsibility to negotiate quality and costs because they could be at risk of serious fines and penalties.

We have already seen those scenarios begin to play out with Johnson & Johnson around benefits, UnitedHealthcare, and 401K funds. Specifically, for Johnson & Johnson, the lawsuit involves a prescription drug plan’s benefits and management, including the plan’s usage of pharmacy benefit managers (PBMs). The lawsuit alleges that as a result of fiduciary failures, plan participants and beneficiaries were required to pay increased costs and premiums and thus harmed.

In the ever-evolving landscape of healthcare, employers shoulder a crucial responsibility in ensuring the well-being of their employees. Central to this duty is the management of pharmacy benefits, a domain where the fiduciary role of the employer comes to the forefront. Pharmacy Benefits Management (PBM) contracts, in particular, demand a vigilant and informed approach to safeguard both the financial interests and the health outcomes of employees. Let’s delve into the significance of this fiduciary role and how employers can navigate it effectively.

Understanding the Fiduciary Role

A fiduciary duty is a legal and ethical obligation to act in the best interest of another party. In the context of PBM contracts, employers act as fiduciaries for their employees, ensuring that the terms and conditions of the contract serve the employees’ interests above all else. This entails not only seeking cost-effective solutions but also prioritizing the quality and accessibility of healthcare services.

Challenges in PBM Contract Management

Navigating PBM contracts can be complex due to various factors:

Opaque Pricing Structures: PBM contracts often involve intricate pricing structures that may not be transparent to employers. Hidden fees, rebates, and spread pricing can obscure the true cost of pharmaceuticals, making it challenging to assess the value proposition.

Lack of Accountability: Without proper oversight, PBMs may prioritize their profits over the interests of employers and employees. This lack of accountability can lead to suboptimal outcomes in terms of cost control and healthcare quality.

Rising Drug Costs: The escalating costs of prescription drugs present a significant financial burden for employers and employees alike. Effective PBM contract management is essential to mitigate these costs while maintaining the accessibility of essential medications.

Employer Responsibilities

To fulfill their fiduciary role effectively, employers must undertake the following responsibilities:

Due Diligence: Thoroughly evaluate PBM contracts before entering into agreements. This includes scrutinizing pricing structures, assessing network coverage, and negotiating favorable terms.

Transparency: Demand transparency from PBMs regarding pricing, rebates, and any potential conflicts of interest. Employers should have access to comprehensive data to make informed decisions.

Ongoing Monitoring: Continuously monitor PBM performance to ensure compliance with contractual obligations and identify areas for improvement. Regular audits and performance reviews are vital tools in this regard.

Employee Education: Empower employees with information about their pharmacy benefits, including coverage options, formularies, and cost-saving strategies. Education can help employees make informed decisions and navigate the healthcare system more effectively.

Advocacy: Advocate for policy changes that promote transparency, competition, and affordability in the pharmaceutical industry. Employers have a collective voice that can influence legislative and regulatory reforms.

Leveraging Technology and Partnerships

Employers can leverage technology solutions and strategic partnerships to enhance their PBM contract management efforts. Advanced analytics platforms can provide insights into healthcare utilization patterns, cost drivers, and opportunities for optimization. Additionally, partnering with trusted advisors, such as Pharmacy Consultants or benefits brokers, can offer expertise and guidance in navigating the complexities of PBM contracts.

Conclusion

The fiduciary role of employers in managing PBM contracts is paramount in ensuring the well-being and financial security of their employees. By exercising due diligence, promoting transparency, and advocating for policy reforms, employers can fulfill their obligations and drive positive outcomes in healthcare delivery. In a landscape where healthcare costs continue to escalate, effective PBM contract management is not just a responsibility but a strategic imperative for employers committed to the welfare of their workforce.