CVS Caremark Pharmacy Benefits Management | Sourcing Alliance

  • Common Challenges
  • The Sourcing Alliance Program
  • Why CVS/OptumRx?
  • Procurement Process
  • Getting Started

The pharmacy benefits management (PBM) world is incredibly difficult to decipher…it’s like trying to solve a ten-sided Rubik’s cube. Should I use a coalition, or should I go to market for a purchase agreement on my own? How much control do I have in the ongoing management of the formulary and the classification of drugs (what drugs are specialty vs. brand name)? Why do the PBMs make their purchase agreements so difficult to understand? How do I know that the terms of the proposal I accepted are accurately reflected in the terms of the purchase agreement I’m being asked to sign? And what is my recourse when I figure out that the terms of the purchase agreement are different than the terms of the proposal? Really, the PBM assigned us a new account manager yet again? Is consistent, high-quality customer service too much to ask for? Where are the savings we were promised?

If any of these questions sound familiar, no worries. Sourcing Alliance leveraged group purchasing and our sourcing and procurement expertise to develop a better PBM alternative than what is currently available in typical government supply contracts.

Our Commitment to Establish a Better Alternative for our Members

Sourcing Alliance invested eight exhaustive years in our search for a better solution. We came to one incontrovertible conclusion: commanding better pricing and contract terms in order to create a cooperative purchasing agreement requires massive buying power. Hundreds upon hundreds of millions of dollars in annual spend.

Sourcing Alliance invested eight exhaustive years in our search for a better solution. We came to one incontrovertible conclusion: commanding better pricing and contract terms in order to create a cooperative purchasing agreement requires massive buying power. Hundreds upon hundreds of millions of dollars in annual spend.

We concluded that partnering with an existing coalition was the only way to create a pharmacy benefits management program that would increase transparency, control, and the quality of customer service for our members. Sourcing Alliance initiated a search to identify the best coalition partner, and ultimately selected Health Action Council (HAC) as the coalition best suited to achieve our pharmacy benefits management program objectives.

More than 20 years ago, HAC created what is now the longest standing, non-profit pharmacy benefits management coalition in the country. This coalition is one of nation’s largest, with more than $700 million in annual spend, and delivers pharmacy benefits to more than 2.5 million employees and family members.

The timing couldn’t have been better. HAC’s existing pharmacy benefits management contract was going to expire. HAC was preparing to initiate its next request for proposals (RFP) process and wanted to establish a publicly procured, competitively solicited cooperative contract for its public sector members. HAC and Sourcing Alliance (HAC/SA) partnered to publicly procure a cooperative contract for PBM that would be available to both organization’s members.

SourceRx: The Only Publicly Procured PBM Contract in the Country

SourceRx is a revolutionary pharmacy benefits management coalition that offers self-insured employers a more cost-effective way to procure and deliver pharmacy benefits to their employees. SourceRx is a publicly procured cooperative purchasing agreement with aggressive contract terms designed to provide greater prescription drug price stability, extensive flexibility, and budget certainty, while also delivering an average of 25% savings to new participants in the program.

HAC/SA sought a pharmacy benefits management subject matter expert to lead the development of the RFP specifications and cooperative contract negotiations. After evaluating several leading consultants, we selected Quest Analytics based on its actuarial background, pharmacy benefits management experience, industry knowledge, and demonstrated commitment to develop a revolutionary PBM program.

HAC/SA, Quest, and more than 50 members jointly identified a list of 40 contract concessions that would provide us with the transparency, control, and quality of customer service we wanted. Each of these contract concessions required a yes or no answer from the responding supplier to eliminate any gray areas. The 40 concessions addressed long-standing member frustrations and pain points, such as:

Plan Design Flexibility – empower employers to choose the best plan design to meet their unique needs including the following options:
o Transparent – PBM receives revenue from margin pricing and retains a portion of the manufacturer rebates.
o Traditional – PBM discloses all revenue streams (e.g. margin pricing, rebates, formulary management fees, data sales, etc.).
o Average Script Price – negotiated cost guarantee per script on non-specialty drugs.
Claims-Level Pricing Guarantees – applies coalition pricing on a per claim, per employer basis – not in the aggregate across all claims.
Consistent Pricing Regardless of Size – all participating employers receive the same prescription pricing, regardless of the number of employees.
Built-in Price Decreases – as the size of the coalition increases, pricing for all participating groups decreases.
Three-Year Pricing Guarantee – protects against future prescription drug price increases.
Transparency – clarity regarding the classification of brand name, generic, and specialty drugs, with stable discount rates.
Easy Adoption – easy implementation process for public sector employers in all fifty states.

From these contract concessions came SourceRx. The program delivers the following pharmacy benefits management related services at no additional cost:

Initial Pricing Analysis – a detailed evaluation of the projected savings and the impact of transitioning to SourceRx.
Quarterly Reviews – regular reviews of program performance.
Annual Audits – individual audits to verify master agreement terms and pricing are properly applied to each participant; participants receive full refunds of any identified overcharges.
Annual Market Checks – an intensive process of securing pricing from competing PBM providers each year to ensure the most competitive pricing is available to SourceRx participants.
Ongoing Education – education about changes within pharmacy benefits management industry and how those changes may affect each participating group.

Download the Program brochure

Why Did Sourcing Alliance Select CVS/Caremark and OptumRx as our PBM Suppliers?

Our coalition’s $700 million in annual spend commanded the attention of the nation’s leading pharmacy benefits management providers, most of whom aggressively competed for our members’ business. We invested thousands of man hours in soliciting member input, developing specifications, conducting the public procurement process, reviewing thousands of pricing line items, negotiating directly with multiple suppliers, scoring multiple rounds of proposals, and finalizing cooperative contract terms.

We issued a dual award to CVS/Caremark and OptumRx, two of the three largest PBMs in the country, as the lowest responsive and responsible bidders. Both agreed to 31 out of the 40 contract concessions detailed in the RFP, the most significant concessions ever achieved by a PBM coalition.

Download the Procurement Process

Why did Health Action Council & Sourcing Alliance Develop the Pharmacy Benefit Management Program?

For over 20 years, Health Action Council has managed a pharmacy benefit management (PBM) program on behalf of its members.  The program leverages the collective purchasing power of Health Action Council’s participating members to secure better pricing terms and contract features from PBM suppliers.  The program has become one of the largest PBM purchasing programs in the country, and delivers pharmacy benefits for millions of lives annually.

In 2015, Health Action Council began the process of developing a new Request for Proposal (RFP), in anticipation of its then-current supplier contract expiring at the end of 2016.  Health Action Council’s leadership and members saw the new RFP process as an opportunity to dramatically shift the PBM coalition paradigm, and to develop a PMB program incorporating the following requirements:

  • Increased plan design choices – Transparent, Traditional, and Average Script Price.
  • Cost savings as a result of the coalition’s volume, with savings for all participants increasing as the coalition grows.
  • Protection against the rising cost of prescription drugs through multi-year price guarantees.
  • Transparency in the classification of brand name, generic, and specialty drugs, with stable discount rates.
  • Consistent program pricing for all self-insured employer groups, regardless of size.
  • Claim-level pricing guarantees (applying coalition pricing on a per claim, per employer basis).
  • Improved account management and customer service levels, with financial penalties to the PBM supplier for underperformance.

Health Action Council established a Steering Group of members representing each of the various types of members participating in the program.  The Steering Group included small, medium, and large employers ranging in size from 500 to over 90,000 employees from manufacturing, financial services, government, technology, retail, and public education industries.  Additionally, the Steering Group involved a mix of privately held, publicly traded, and governmental entities.

Recognizing that many of its members utilizing the program are public sector entities (such as cities, counties, and K-16 educational institutions), Health Action Council partnered with Sourcing Alliance to conduct the RFP process in accordance with public sector procurement guidelines to establish an already-procured, piggybackable agreement available to public sector entities nationwide.

The Procurement Process

Together, Health Action Council and Sourcing Alliance sought a PBM subject matter expert to work as part of the Procurement Team.  After interviews with numerous consultants, we selected Quest Analytics based on its actuarial background, pharmacy benefits management experience, industry knowledge, and demonstrated commitment to develop a revolutionary PBM program consistent with Health Action Council’s stated objectives.

The Procurement Team included of Health Action Council as the group purchasing expert, Sourcing Alliance as the public procurement expert, and Quest Analytics as the pharmacy industry expert, all reporting our progress to the Steering Group.  We developed draft specifications consistent with the Steering Group’s objectives, researched the supplier marketplace, and identified numerous potential suppliers that could meet the stringent program criteria we had created.  We proactively contacted multiple suppliers from across the country and invited them to participate in the process.  We reviewed our program objectives with each supplier, provided them with an opportunity to review the draft specifications, and sought their feedback before finalizing the RFP specifications.

Following months of development, the Procurement Team completed the program specifications and assembled the final RFP.  Once the Steering Group reviewed and approved the final RFP, Sourcing Alliance initiated the public sector procurement process by publishing notice of the RFP opportunity on our website and in a newspaper of general circulation for three consecutive weeks.  We proactively forwarded the RFP package to each supplier we had identified and interviewed during our advance research, with the objectives for Health Action Council and Sourcing Alliance members.

In keeping with public sector procurement guidelines, the Proposal Team opened the proposals we received in a public forum.  We scored Technical Proposals (qualitative supplier information) first, and only scored Cost Proposals (pricing and financial information) from suppliers whose Technical proposals met our minimum scoring requirements.  Three finalists qualified to present their capabilities in an open forum to current users of the program and the Proposal Team.  An overwhelming majority of users attended the finalist meetings and engaged in direct dialogue with key executive leadership of the finalists.  Based on the bid tabulation results, we issued a dual award to CVS/caremark and OptumRx as the lowest responsive and responsible bidders.

Why did Health Action Council & Sourcing Alliance Select both CVS/caremark and OptumRx as Supplier Partners?

We selected CVS/caremark and OptumRx for a number of reasons:

  • Both companies’ proposals achieved the objectives established by the Steering Group.
  • The bid tabulation resulted in a statistical tie with five one-hundredths of a point separating the two companies.
  • The size and scale of both entities enable them to meet the financial commitments made in their response. Together, CVS/caremark and OptumRx are two of the three largest PBMs in the industry and service over 80% of the PBM marketplace.
  • The two companies’ business models are sufficiently different to provide program participants with a meaningful choice.
  • Both PBMs agreed to work in a dual choice environment without changing their proposed financial terms or pricing.

The program now provides greater accountability for the supplier partners, increases transparency, leverages the coalition purchasing power, reduces participants’ costs as the coalition continues to grow, features a three-year price guarantee to better control costs, includes claim-level pricing guarantees, and applies financial penalties to the supplier partners for account management and customer service underperformance.

The contract is flexible, enables users to create and manage their own custom benefits design, and was procured in accordance with public sector purchasing guidelines.  As a result of the public sector procurement process, local governments, K-12 school districts, and institutions of higher education can implement the program without having to conduct their own bid or RFP process.

In addition, Sourcing Alliance partnered with RxReins to provide three stop loss insurance options for program participants.  Participants can purchase stop loss insurance to contain their total annual Rx spend (aggregate coverage), the maximum annual Rx spend on a per-employee basis (specific coverage), or the maximum monthly and annual expense (guaranteed cost coverage).  This last option gives participants the opportunity to establish budget certainty by creating a fixed monthly PBM cost.

Before you begin using our Pharmacy Benefits Management Program, we recommend that you request our initial pricing analysis which will provide you with a detailed evaluation of your projected savings through our program, and the impact transitioning to our program would have on your company.

To conduct this analysis, all we need is your 12-months claims data. From there, we need just three business days to have that pricing analysis back to you. Yes, you heard it right. Three business days.

To learn more about this program or request an initial pricing analysis at no cost to you, call or email Sourcing Alliance today at 844.289.6728 or info@SourcingAlliance.org.

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