Introduction
Pharmacy Benefit Management (PBM) plays an integral role in today's healthcare landscape. PBMs act as an intermediary between health insurance plans, employers, and pharmacies to manage prescription drug benefits. They help control costs, ensure formulary compliance, and negotiate rebates from drug manufacturers. This article provides an overview of PBMs, how they work, and their impact on the healthcare system.
What is a PBM?
A Pharmacy Benefit Manager, or PBM, is a third-party administrator of prescription drug programs. PBMs are primarily responsible for developing and maintaining the drug formularies for their clients. Formularies are lists of covered medications broken down by tiers (generic, preferred brand, non-preferred brand, specialty). PBMs negotiate rebates and discounts from drug manufacturers to help lower costs for health plans.
Some of the key services provided by PBMs include developing networks of retail and mail-order pharmacies, processing and paying prescription drug claims, performing drug utilization review, and operating mail-order and specialty pharmacies. PBM clients include health insurance companies, employers, labor unions, Medicaid plans, and Medicare Part D drug plans. PBMs help control drug costs for their clients while ensuring members have access to necessary medications.
Drug Formulary Management
One of the main responsibilities of a PBM is creating and maintaining a drug formulary for their health plan clients. PBM pharmacists and doctors evaluate drugs based on efficacy, safety, and cost to determine formulary placement. Generic drugs that provide clinical equivalence are favored to help lower costs. Brand drugs are assigned to different tiers based on the benefit level, with generics having the lowest copay and highest tier drugs like specialty medications costing more.
PBMs negotiate rebates from drug manufacturers in exchange for preferred formulary placement that drives more utilization. Manufacturers have strong incentives to offer rebates as placement on the preferred brand or generic tiers can significantly increase sales. According to the Kaiser Family Foundation, around 75-80% of prescription drug spending in the U.S. goes through PBMs, giving them substantial negotiating leverage. The rebates obtained from pharmaceutical companies are significant—estimates indicate total US drug rebates exceeded $100 billion in 2021.
Pharmacy & Reimbursement Networks
PBMs create large networks of preferred retail and specialty pharmacies that agree to contracted reimbursement rates. Pharmacy networks allow insured members to fill prescriptions while paying discounted copays. This incentivizes use of the preferred network over non-contracted pharmacies that may charge higher prices if not covered by insurance.
PBMs also directly own and operate mail-order and specialty pharmacies that fill prescriptions by mail. This allows consolidation of high-cost specialty medications and maintenance drugs into centralized operations versus retail. Direct ownership of pharmacies maximizes rebate capture for PBMs and client health plans.
Pharmacy & Physician Compliance
To help control costs, PBMs ensure prescription choices comply with their client's drug formularies. At the point-of-sale, PBM systems will alert pharmacies if a non-preferred brand is dispensed versus the clinically equivalent low-cost generic. Physicians prescribing non-formulary drugs are also targeted for outreach by PBM representatives to encourage alternate options or prior authorizations.
Studies have found formulary compliance interventions by PBMs lead to substantial Medicaid savings, with one analysis estimating over $500 million in annual rebates due to increased use of preferred drugs. Compliance management is a key aspect of PBMs controlling spending for their health plan customers. However, some physician groups argue the pressure exerted can potentially compromise clinical judgement in some cases.
Impact on Healthcare Costs
Independent analyses have found PBM services have lowered prescription drug costs and overall healthcare spending significantly in the U.S. with spending estimates over 15-20% less than without PBM involvement in medication management and negotiations. Critics, however, argue PBM business practices like spread pricing lack transparency.
Spread pricing occurs when PBMs retain a portion of the negotiated rebates and discounts from manufacturers rather than passing along the full savings to health plans. While not necessarily illegal, spread pricing reduces the potential for lower insurance premiums and out-of-pocket costs for consumers. Some states have enacted legislation requiring greater PBM transparency into contracted rates and rebate revenue retained versus passed through.
Conclusion
In conclusion, Pharmacy Benefit Managers play an important yet complex role in administering prescription drug programs in the U.S. PBM services have led to lower medication costs for health plans through competition, rebates, and compliance programs compared to straight retail pharmacy billing. Ongoing debate exists around lack of pricing transparency and the need for PBM regulation to ensure savings are fully shared with consumers and tax payers rather than retained as profits. As drug costs remain high, PBMs will continue to be a focus of healthcare reform efforts going forward.
