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

This encore revisits one of the most popular episodes of 2023. Paul Holmes, an ERISA attorney who has spent nearly 40 years specializing in PBM (pharmacy benefit manager) contracts, joins Stacey Richter to explain why signing a PBM's standard model contract without independent review typically costs a self-insured plan sponsor 30% to 40% above market on drug spend — and why that gap has become a legal liability, not just a financial one, since the passage of the Consolidated Appropriations Act (CAA).

WHAT YOU'LL LEARN

✅ Why signing a PBM's standard model contract without independent review typically costs a plan sponsor 30% to 40% above market on drug spend

✅ Why employee benefit consultants (EBCs), not lawyers, have historically been the ones reviewing PBM contract pricing — and why most ERISA lawyers have never been trained to catch the profit centers buried inside

✅ Why an EBC's compensation disclosure often contains a "tainted disclaimer" that quietly leaves the door open to indirect PBM payments calculated on a book-of-business basis rather than per plan

✅ Why Section 202 of the Consolidated Appropriations Act (CAA) puts plan sponsors — not PBMs or EBCs — on the hook for ERISA fiduciary breach lawsuits tied to conflicted consulting relationships

✅ Why Paul expects the same fee-only shakeout that hit 401(k) advisors after the 12b-1 fee lawsuits to eventually hit PBM-compensated benefit consultants too

WHY THIS MATTERS

A standard PBM contract can run 50 to 60 dense pages of AWPs, WACs, discounts, and minimum rebates — dense enough that even ERISA lawyers who aren't PBM specialists routinely miss the profit centers built into the pricing provisions. Historically, that review has fallen entirely to employee benefit consultants, some of whom are quietly compensated by the very PBMs they're supposed to be holding accountable, at a rate Paul pegs at roughly five to ten times what the plan sponsor pays the consultant directly. With the CAA now exposing plan fiduciaries to lawsuits over exactly this kind of conflict, an independent third-party contract review is no longer just good purchasing discipline — it's legal risk management.

MENTIONED IN THIS EPISODE

EP379 with AJ Loiacono: Apple Podcasts | Spotify | Other Apps

=== LINKS ===

🔗 Show Notes with all mentioned links: Episode Page

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00:00 Introduction

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 a 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?