Pharmacy Benefit Managers: The Silent Healthcare Decision-Makers

The amount you pay for prescription drugs is influenced by many factors and pharmacy benefit managers (PBM) play a key role in this complex process. This article will explore some of the roles of PBMs concerning drug costs.

Here's what to expect:

Bridging the gap: more about PBMs and their role with insurance companies

The art of the deal: important things to know about PBM drug price negotiations

The path to transparency: more about potential regulation of PBMs by the government

Taking charge of costs: what to know to obtain the most cost-effective medication

Pharmacy disruptors: find out about rising pharmacy models

What are pharmacy benefit managers?

A pharmacy benefit manager works as a link between insurance companies, drug manufacturers, wholesalers, and pharmacies. The main purpose of a PBM is to manage prescription drug costs. PBMs work with insurance companies to help reduce prescription drug costs by doing the following:

Development of drug formulary

A major responsibility of PBMs is to manage and develop the drug formulary (list of medications) for a prescription drug plan. The formulary list includes generic and brand-name medications that your insurance company covers. The PBMs will evaluate medications to be added to the plan formulary based on several considerations, including the manufacturers' price and the efficacy and safety of the medication. The PBM will also set up drug tiers for the insurance company, which will determine the amount you pay out-of-pocket for your prescriptions.

Development of a pharmacy network

Pharmacy networks consist of pharmacies that are contracted with insurance companies to provide medications to their beneficiaries. The PBMs help the insurance companies establish those pharmacy networks. Within the pharmacy network, there is typically a good mix of retail, specialty, and mail-order pharmacies that offer services to beneficiaries.

A closer look at drug price negotiations

Pharmacy benefit managers are responsible for bargaining with drug manufacturers, pharmacies, and medication wholesalers. They negotiate with these entities to lower the cost of medications for insurance plans. Contracts typically developed with drug manufacturers include rebates (refunds) and discounts on specific medications. Those medications are typically included in the insurance plan’s formulary.

Pharmacies negotiate with PBMs to set the amount insurance plans will pay for prescriptions. They review each medication on the plan's list and agree on reimbursement amounts. Joining a pharmacy network can be tough, so pharmacies compete and negotiate with PBMs to stay included.

All of the price negotiations ultimately lead to the insurance plan paying less overall for the cost of the medication. These negotiations have faced criticism over the past few years, as the details are not publicly known, and the lack of transparency has raised concerns among consumers and providers regarding how drug prices are determined.

Regulation of pharmacy benefit managers

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PBMs have faced harsh criticism due to a lack of transparency regarding their financial transactions. Recently, there has been increased demand for PBMs to be more transparent in their negotiations with drug manufacturers, pharmacies, and other entities. Across the United States, many states have implemented regulations on PBM pricing, reimbursement, transparency, and reporting. Ultimately, these regulations aim to improve patient medication access and prioritize health outcomes.

In 2023, several legislative bills were introduced to Congress to address some of these issues. The bills focused on stopping incentives for PBMs to recommend high-cost medications to insurance plans. They also focused on having PBMs increase reporting on the amount of money received and retained from certain transactions. This includes money received for negotiated prices for covered drugs and pharmacy payments.

Challenges to pharmacy benefit managers

The pharmaceutical industry is constantly changing how patients receive their medications. New and established companies are exploring innovative ways to increase patient access to cost-effective drugs. For instance, Mark Cuban Cost Plus Drug Company sells several generic drugs at typical market prices and does not accept PBM contracts. In addition, insulin manufacturers Eli Lilly, Novo Nordisk, and Sanofi have lowered the cash price of their insulin by up to 75% in some cases and limited the cost of insulin to $35 per month.

Blue Shield of California no longer uses their primary PBM. It utilizes a combination of Mark Cuban Cost Plus Drug Company for prescription drugs through retail pharmacies, Amazon Pharmacy for mail-order delivery, and a third party for claims processing. As more businesses adopt similar models, more insurance companies may avoid relying on PBMs.

Other countries use different models to control drug costs. For example, in the Canadian province of British Columbia, they use a method called reference pricing. This involves the insurance plan setting a maximum rate it will pay for a medication, based on the prices of similar medications in the same class. For instance, they might pay a fixed monthly fee for any acid reflux medication in a certain class.

Ultimately, pharmacy benefit managers (PBMs) still act as liaisons for health plans within the pharmaceutical supply chain. However, their current practices have raised concerns about patients' access to essential medicines. Federal regulation of PBMs could help simplify some of the existing complexities. Understanding your prescription drug plan's coverage details is crucial for making informed medication decisions. Utilize all available resources to assist you with optimizing your medication management.