Overview of the Functions of Pharmacy Benefit Managers

Pharmacy Benefit Managers are companies responsible for securing the best health outcomes at the lowest costs for employers, labor unions, and health insurers. They act as third-party companies or intermediaries. Various government and corporate entities contract them to negotiate with pharmacies and drug manufacturers.

Pharmacy Benefit Managers came about in the 1960s to help insurers manage their drug spending. Later, they began adjudicating prescription drug claims and developing and managing pharmacy networks. When new drugs emerge, PBMs engage in negotiations with the manufacturer on behalf of the companies or insurers through which the manufacturers give them rebates. The benefit managers then reimburse the pharmacy for dispensing the prescription on behalf of the insurance companies.

Most Pharmacy Benefit Managers function as part of major chain drug stores, integrated healthcare systems, retail pharmacies, or as subsidiaries of insurance companies. The role of PMBs includes negotiation of rebates and discounts and contracting with pharmaceutical companies to reimburse them for dispensing drugs. They also develop formularies on behalf of health insurers that help individuals determine what drugs to use and the costs. They create these formularies with various physicians and experts to ensure that patients have the best possible solutions.

PBMs allow individuals greater access to affordable medication and healthcare through their extensive network of retail pharmacies. The Step Therapy Programs are suited for these functions. These programs cater particularly to individuals that take prescription drugs regularly. It aims to provide cheaper medication alternatives to patients by allowing them access to cheaper but effective options before opting for a costlier drug. The drug utilization review is also a program run by Pharmacy Benefit Managers. The program aims to review the effectiveness, safety concerns, and potential dangers of a drug and alert their patients where potential negative drug concerns arise. They also provide feedback to employers to ensure that their members are receiving the best care possible and know where to make necessary improvements.

Pharmacy Benefit Managers make money through various means. One of these ways is by charging administrative and service fees from the insurance company for processing prescriptions, negotiations with the various drug companies and pharmacies, and managing mail-order pharmacies. They also generate revenue by collecting rebates from the manufacturer.

“Spread pricing” is also common among pharmacy benefit managers. They sell the prescription drugs to the payers at a higher price than they negotiated from the manufacturer and keep the difference in price as profit. Since PBMs do not traditionally disclose the prices they negotiate, they can sell at a public list price. Many believe that this negatively impacts the pharmaceutical industry as while drug costs are increasing, pharmacy reimbursements continue to decline. The situation forces drug companies to raise their product list prices.

The PBM industry faces some criticisms and is often a target for lawsuits and investigations by the government. In a bid to regulate PBMs, policymakers have proposed some reforms. One of these is by ensuring greater transparency around rebates by gaining more data to understand the necessary processes and know where changes are needed. Lawmakers also intend to ban the practice of spread pricing to ensure that prescription drugs are not overpriced for payers. Experts also advise that PBMs focus their business model on patient formularies, ensuring better access to cost-effective medical solutions.

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