4 Key Stages of the PBM Contract Lifecycle

Pharmacy costs now make up more than 25% of employers’ healthcare budgets, and for self-funded employers, managing these expenses starts with securing the right pharmacy benefit manager (PBM) contract. PBM contracts dictate drug pricing, reimbursement terms, and service guarantees—yet they are often complex, opaque, and difficult to navigate.

Multi-year commitments and fluctuating drug costs can leave employers locked into agreements that drive up spending over time. Understanding the PBM contract lifecycle is essential to securing favorable terms, ensuring PBM accountability, and optimizing your pharmacy benefits contract and spend.

In this blog, we explore the 4 key areas of the PBM contract lifecycle and offer practical ways to optimize your contract throughout the course of its life.

The Lifecycle of PBM Contracts

From understanding how your current contract is performing to conducting contract oversight and optimization, here are the main milestones for navigating a PBM contract cycle.

1. Contract Evaluation

Contracts with PBMs usually range between one and three years. However, new medications and shifting market dynamics can change your contract even in the middle of your contract term. Therefore, it’s important to stay on top of how your contract and utilization trends are performing to best inform your next PBM renewal or procurement.

PBMs typically require a 90-day window for contract implementation, and the closer you get to this deadline, the less room there is for negotiation. Therefore, starting the contract evaluation process early—ideally at least 9 months before renewal—allows employers to assess their evolving needs, analyze historical claims data, explore cost-saving opportunities, and conduct a competitive bidding process before getting locked into another cycle.

2. PBM Procurement and Renewals

PBMs may push for contract renewals that maintain the status quo, and without a competitive procurement process, employers risk missing out on better pricing, improved terms, and substantial cost savings.

The pharmacy contract procurement process allows plan sponsors and benefits consultants to search for and identify potential PBMs, determine critical contract terms, leverage competitive pressure against their incumbent provider, and ultimately find opportunities to curb pharmacy spend while ensuring benefits access to members. By implementing a competitive procurement process, employers can save thousands, if not millions, of dollars during the duration of the contract.

Before taking a contract out to bid, it’s important to first identify the most important requirements for your member population and to use that criteria to determine which vendors might be a good fit to include in a RFP process. By leveraging third-party pharmacy experts and PBM procurement technology, the bid terms can be normalized across PBMs to deliver an apples-to-apples comparison of potential contracts, including an incumbent provider’s renewal offer.

This type of approach gives you access to multiple PBMs, as well as alternative funding and carve-out vendors, along with the ability to customize contract terms and conduct an analysis that will highlight the most favorable contract and savings opportunities.

3. Establishing Oversight

Pharmacy program management doesn’t end once the PBM contract is signed.  Ongoing monitoring of PBM contracts and effective oversight reports are vital for transparency, accountability, and preventing surprises that can have a long-term financial impact on an organization.

Oversight can be initiated at any point in the contract’s lifecycle and ensures that plan sponsors have full visibility into their program’s performance: claim errors, pricing variances, language discrepancies, and other metrics can diagnose whether a PBM contract is being executed properly.

Oversight reporting can also uncover differences between surpluses and shortfalls that could result in unrealized savings and may inform updates to future PBM contract language. This ensures that the PBM is being held accountable to their contract so that plan sponsors can meet their fiduciary responsibilities around pharmacy benefits.

4. Mid-Contract Optimization

Your pharmacy contract does not have to be static throughout the course of its lifecycle. Contract optimization is possible at multiple points—mid-term reviews, market checks, and renewal periods—allowing employers to confirm pricing guarantees, revisit formulary listings, and explore cost-saving measures based on utilization.

Reviewing certain specific areas of pharmacy spend can identify formulary, exclusion, and guarantee optimizations or adjustments that can reduce costs. This can include swapping a low-cost generic for a highly-utilized brand or alternative funding options to curb the cost of specialty drugs, for example. Ongoing contract reporting can give visibility into areas within the contract that may be improved upon.

How to Navigate the PBM Contract Lifecycle

Securing the right PBM partnership and contract can be straightforward if you implement some key best practices.

Start Procurement Early

The procurement process can take months to complete, whether you’re renewing with your incumbent PBM or looking to change vendors. Therefore, reevaluating your contract before the renewal date and starting the process at the beginning of the final year of your contract—at least 9 months before your contract renewal or RFP—is ideal.

By giving yourself more time to set a strategy and explore options, you’re showing PBMs that you are taking the procurement process seriously and you’re more likely to get a competitive offer.

Implement PBM Oversight

PBM oversight gives you the opportunity to achieve control, confidence, and transparency in your PBM contract. Oversight can be turned on at any point during the lifecycle and can support decision-making for future procurements. A claims oversight solution for comprehensive and ongoing reporting and analysis allows you to hold the PBM accountable by readjudicating 100% of your pharmacy claims to identify those that may be eligible for rebates.

Oversight solutions also identify errors, mistakes, and pricing variances, and ensure your contract terms are being met.

Consult Independent Pharmacy Experts

Incumbent PBMs often provide renewal contracts that closely mimic the previous contract and may not always account for changes in member populations, trends in utilization, or other factors. Independent pharmacy experts can work with you to understand existing needs, goals, and changes during the previous contract term, and can help translate those requirements into procuring the next pharmacy benefits contract.

Organizations like Truveris help both employers and benefits consultants leverage technology to ensure competitive terms, accurate data and reporting, and ultimately healthier members.

Truveris is a leading digital health company focused on delivering truth and clarity in pharmacy. Truveris’ proprietary technology, coupled with deep pharmacy expertise, helps to build a more efficient market that maximizes choice, accessibility, and prescription drug affordability. Our solutions provide the insight and knowledge to help people lead healthier and more productive lives.