Effective Escrow Rate Exposed!

Escrow is a trigger word that provokes a negative response and fear about the potential impact on cash flow. While you could use a different word and call it a withhold, security payment, or whatever, the bottom line is funds are set aside for the benefit of the parties involved. For Effective Rate contracts, it is not the effective rate at issue, it is the mechanics of the True Up process. During the True Up, the PBM will offset overpayments with underpayments to arrive at a net amount that is either due back to the PBM or due back to the pharmacy. Simple math plus/minus.

Imagine a network with just two pharmacies. At the end of the year, Pharmacy A is overpaid by $10,000 and Pharmacy B is underpaid $10,000. The net result is zero and the PBM says no problem we’re good. However, the underpaid pharmacy is still out $10,000.

If Pharmacy A was overpaid by $10,000 and Pharmacy B was underpaid by $20,000, the PBM will arrive at a $10,000 underpayment that is due back to Pharmacy B. But wait, Pharmacy B was underpaid by $20,000 not $10,000. Again, Pharmacy B loses.

You can do the math using any combination of overpayments and underpayments and attach as many zeros as desired and the result is always the same. If the overpayments cannot be collected the underpaid pharmacy loses.

At Pharmacy First we created an intelligent Escrow process that captures overpayments just for pharmacies that are net overpaid. We do not escrow funds for pharmacies that are net underpaid. From a cashflow perspective the escrow does not create a burden on a pharmacy. The funds are then used to make the underpaid whole. Problem solved!

If you are a Pharmacy First member you are in good hands. We provide full transactional level visibility to your claims and a detailed accounting of any Escrow amounts. If you are not with Pharmacy First, ask your PSAO how they handle the True Up process. Ask for truth and transparency regarding your over and under payments. Better yet, ask for transaction level detail showing your point-of-sale reimbursement compared to the contract Effective Rate – Do the math yourself. You might be surprised at the result.

Mark Twain once said, “the difference between the right word and the almost right word is the difference between lightning and a lightning bug.” Smart man. Escrow is not a bad word, Escrow is good, Escrow is your friend.

If you need more information, please feel free to call our team at 800.460.1575.