How Pharmacy Benefit Managers Impact Your Costs

February 4, 2018

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In recent years, prescription drug pricing has catapulted to the top of the news cycle for healthcare. It is often cited as the top driver of ever-increasing healthcare spending in the U.S. and medical cost trend in general. The pricing and distribution of prescription drugs has many elements that affect overall prescription drug cost. Let’s examine one of the largest elements: Pharmacy Benefit Managers (PBM).

A PBM is the intermediary between a health plan, pharmacy, and prescription drug manufacturer. Some of the responsibilities of a PBM include:

  • Review and process prescription drug claims
  • Contract with retail pharmacies for competitive drug pricing
  • Develop and manage drug formularies, which is the list of covered drugs for a carrier or medical plan
  • Operate mail order pharmacy programs
  • Operate specialty pharmacy programs
  • Negotiate discount or rebate programs with various drug manufacturers
  • Establish clinical programs and policies
  • Provide member tools/resources

PBMs are a critical intermediary in containing costs, as drug manufacturers continue to increase the price of existing drugs (remember the EpiPen price hike in 2016?) and new high cost drugs continue to enter the market (like Sovaldi at $1,000 a pill, or $85,000 for the full regimen). In an effort to contain rising costs, PBMs review both the effectiveness of a drug and the underlying manufacturer’s cost of a drug to determine coverage and tier within a prescription drug formulary. For example, if there are two drugs that provide the same treatment, but one costs more than the other, the more expensive version may have a higher copay/higher tier, or possibly even be excluded from coverage all together. PBMs also ensure appropriate utilization of drugs by placing restrictions such as requiring prior authorization, or step-therapy before covering the drug.

From a consumer standpoint, these actions seem like painful annoyances and roadblocks to obtaining necessary prescriptions. However, from an employer standpoint, the oversight of PBMs prevents improper drug spending and helps to reduce overall prescription drug plan spend. Self-insured employers have long been aware of the role of PBMs, as many large self-insured employers use PBMs as their direct prescription drug plan and even share in savings through drug manufacturer rebates. Employers with fully-insured plans have no control over PBM selection and do not participate in any drug manufacturer rebates. However, self-insured employers should still be mindful of the PBM’s role in their plan, since prescription drug spending and utilization directly impact a carrier’s renewal rate increase each year.


While PBMs are supposed to help reign in prescription drug costs, as of late, they are also under the microscope for being part of the overall prescription drug spend problem. For instance, CVS Health, a nationwide drug store, is purchasing Aetna, an established nationwide health insurer. With the announcement of the proposed purchase, both CVS and Aetna are touting prescription drug savings as a positive result of the merger, which would benefit consumers. Naysayers point to the merger of United Healthcare and PBM OptumRx as an example of why it won’t work, as that merger did not provide as much direct-to-consumer savings as hoped. Those opposed to the acquisition also say such mergers simply make it easier for the newly-formed company to reap greater savings from manufacturer negotiations since savings would not have to be shared between the insurance carrier and PBM – and do not get passed onto the consumer at all.

Also in the news, Anthem Blue Cross is set to break-up with the largest stand-alone PBM (Express Scripts) in 2020 and is embroiled in a lawsuit with them over negotiated drug price savings. Drug manufacturers are pointing fingers at PBMs for not passing along drug savings in the form of rebates to plan sponsors and consumers, instead, pocketing the money for themselves. In turn, groups such as the Health Transformation Alliance comprised of over forty high-profile companies are putting pressure on PBMs for increased transparency in their pricing, rebates, and discounts.

Given all the activity around CVS and Aetna, Anthem and Express Scripts, and Amazon trying to enter the prescription drug market, and higher cost medications and gene therapies coming to market, PBMs will remain in the spotlight for at least the next few years to come!

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